Investing in Digital Cryptocurrencies vs Traditional Stocks
The consistent technological advancements in the past decade have effectively transformed the way younger generations perform tasks ranging from the mundane to the complex. It has also widened their tolerance and acceptance of trying out “risky” or new things, such as investing in digital currencies.
When blockchain erupted a decade ago and the first cryptocurrency was born, it was met with a lot of skepticism. New currencies emerged, and some even crashed (and resurrected), but these altcoins seem like they’re here to stay. People became curious and more open to studying the world of virtual currencies, and eventually began utilizing them for trading and acquiring goods. In a survey of 1,000 online cryptocurrency investors, it was revealed that 43% of millennials have more faith in the crypto market than traditional stocks.
Now, traders are becoming more and more interested in the world of cryptocurrency investment rather than the traditional stock market, because of the higher potential returns. But how accurate are these claims? It’s time to dive in and discover the similarities and differences between the two.
Crypto vs. Traditional: Which Market is Better?
Most people immediately assume that digital and traditional markets have a lot of differences. While they’re not wrong, they’re not entirely correct either. The two have a lot more in common than you think, and it all boils down to the basics.
1. Baseline function – Both markets operate under the same principle. The demand dictates the prices in the cryptocurrency market and traditional stocks, or how much people are willing to pay to own cryptocurrency or a stock market share. In effect, when people are willing to pay more for a specific product, prices hike up; while prices deflate when no one pays attention to it or more people sell their ownership of the said product.
2. Fiat currency value – The market caps and value of each cryptocurrency is often reported in U.S. dollars, similar to the traditional stock market whose value is still defined by government-issued currencies. There’s a possibility for this to change depending on the success of the cryptocurrency market in overtaking or co-existing alongside fiat currency, but for now, this is its reality.
3. Investment based on value – In either market, investors look at the feasibility and potential of each product. If they find that a particular currency is performing well than others, they could put more money behind that. This is similar to traditional stock market moves where they base the purchase of their shares on trends and behind the growth potential of the company.
Market crashes – Both markets have experienced crashes due to many economic factors, such as the 2018 Bitcoin crash and the 2008 stock market crash. This indicates that both have inherent risks, which are expected in the practice of investment anyway.
Of course, there are stark differences, and this is where the debates come in. The following could either interest or deter you from making your investment decisions in each market.
1. Ownership – In the stock market, purchasing a share means you get to own part of the company. This is unlike the crypto trading industry where you mostly invest on the currency and its value, not the company behind the creation of the virtual tokens—even if the business of the company could affect the performance and price of the coin. However, cryptocurrencies are made to stand alone without third-party factors, something that adds to their unique selling point.
2. Profit – If you invest to earn, then you’ll know why many people are more excited about the cryptocurrency market than traditional stocks—it’s easier to get returns on the former and much slower on the latter. The presents a lot of opportunities for traders, which translates to high earnings in a short time. While this introduces risk, as any investment would, some tools can help you avoid it and achieve your financial goals.
3. Global reach – Bitcoin, the most valued cryptocurrency to date, is globally accepted by up to 180 countries. This makes ownership and investment actions fluid and accessible no matter where you are in the world. The stock market is so heavily regulated that there are a lot of processes and formal accreditations one must file before continuing investments from another place. One way to achieve global reach in the stock market is through a broker, but it’s time-consuming and more expensive than doing it yourself.
4. Trading operations – Trading with cryptocurrency can be done 24 hours a day, seven days a week. The events have a quick impact on the market, which also spells instant earnings if you happen to be trading at the right time. This is not the case with the stock market. Trading sessions are present, which means trading only occurs during certain times of the day and ceases operations during weekends and holidays. This makes crypto trading and investments more updated or real-time than the stock market—useful for studying data or watching trends for the products you’re eyeing.
5. Ease of investment – Starting your journey as an investor in the cryptocurrency market is no doubt faster than the stock market. The crypto market isn’t regulated, which means there are different requirements per country, but they are often basic. There’s also less capital required, and the paperwork is more straightforward and less time-consuming. This could change in the future as more government initiatives are beginning to regulate cryptocurrency activity. This differs from the stock market, which has always involved a lot of paperwork, brokerage, taxes, fees, certifications, and more.
6. Amount of supply – Stocks don’t have a cap imposed on them, but some cryptocurrencies do. Such as the case in Bitcoin, where only 21 million altcoins are ever to be mined. As soon as all of that is circulating, the production of Bitcoin will stop, and it’s predicted that demand will only grow larger and larger. Companies can always add stocks for people to buy, which also means more controlled price hikes or drops in the future.
The Bitcoin Price Crash and Stock Market Crash: Are They The Same?
To better explain the answer to this question, one must know why the stock market and cryptocurrencies crash individually.
Stock market crashes usually point to fear-based actions by the traders and market predictors. The panic of profit loss typically drives this phenomenon, which can result in economic recessions. When stock markets crash, they also slow down the growth of the companies involved as investors would be wary of putting up their money. This triggers a chain reaction of company size-downs, lay-offs, and the like.
On the other hand, the cause of Bitcoin’s price crash is a little bit more unclear. Reports merely say that it could have been other emerging coins presenting more value to crypto traders, which meant a shift in where people would want to make their crypto-related investments.
So, are they the same? Well, yes and no.
The similarity lies in the fact that people will generally invest in something they see more value in, based on reports and trends of past tradings. However, the effects of each market’s crashes are drastically different. Cryptocurrencies and stock markets also work independently from each other, meaning they are not correlated. This means the Bitcoin price could crash and stock markets would be unaffected, and vice versa. Essentially, cryptocurrencies present more choices in investment opportunities for traders.
The Dot-Com Bubble and the Bitcoin Bubble: What’s the Difference?
When the internet was first introduced to the masses, it presented exciting times for people globally. Suddenly, the world seemed smaller, and tons of information was available right at a user’s fingertips. Fast forward to today, and the internet is still playing a massive role in tech businesses, the media, and more.
When blockchain technology gave birth to Bitcoin, it gained a lot of attention, but a little less excitement and more confusion. People couldn’t wrap their heads around a digital currency that didn’t need the backing of banks or third-party mediators for transactions to happen. They thought it wasn’t secure and the fact that Bitcoin isn’t tangible made things all the more difficult for an everyday user to grasp.
Even though there are plenty of companies riding the cryptocurrency wave and also developing altcoins of their own, the truth is, ten years later, the impact of Bitcoin is too small to influence or command change at a global scale drastically. This is what investors and crypto companies are waiting for—and slowly but surely, they are getting there.
High Risk, High Reward
In the industry of trading, you won’t be able to see returns on your investments if you’re not willing to experiment with new vehicles. That’s probably what makes the crypto world so exciting. The age of tech will only grow stronger and potentially dominate many other sectors over the years, and the investment in one of its earliest projects, virtual currencies, show a potential that many millennial traders are noticing.
As different companies and governments launch their digital currencies and explore blockchain technology; it’s soon becoming less farfetched to imagine a world dominated by digital currencies. The industry is beginning to mature, and its flexibility presents exciting times ahead for traders.
The facts above surely gave you a lot of room to consider which investment vehicle you want to put your money in. Just like any venture, it will be your responsibility to study the pros and cons of your financial actions—high risk, high reward.
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