Saturday, January 28, 2023
  • Cryptocurrencies are digital currencies that operate using blockchain technology. Most of them, if not all, run under decentralized networks
  • Stocks represent fractional ownership of equity in a business. They reflect the value of an operating company
  • Unlike stocks, crypto investment does not come with ownership of shares in a company. Additionally, crypto investors do not receive dividends from the companies holding their cryptos
  • The difference between crypto and stocks

Cryptocurrencies and stocks fall under different asset classes despite them having similar characteristics. On the one hand, cryptos are digital assets that can be distributed securely from one person to another. They store value and can also serve as a medium of exchange. Contrastingly, stocks are partial ownership of equity in a business.

However, cryptocurrencies and stocks are tradeable and can be seen as investment tools.

Cryptocurrencies

Cryptocurrencies are digital currencies that operate using blockchain technology. Most of them, if not all, run under decentralized networks. In other words, their market value is driven by demand and supply and is not determined by any particular individual, body or government.

Read: Why Nigerians should be wary of Central Bank Digital Currencies

What are stocks?

Stocks represent fractional ownership of equity in a business. They reflect the value of an operating company. In most cases, stock owners in a company are also entitled to shares of the profits in the institution in the form of dividends. The value of stocks improves according to the performance of the company.

Differences between stocks and cryptocurrencies

1. Ownership Rights

Investing in stocks is divergent from investing in cryptocurrencies.

Unlike stocks, crypto investment does not come with ownership of shares in a company. Additionally, crypto investors do not receive dividends from the companies holding their cryptos. Instead, a trader can sell or stake cryptocurrency tokens for passive income.

2. Mode of buying

A trader can buy crypto at any digital currency exchange platform at any time of the day. On the other hand, Stock exchanges operate with limited opening hours and are only open on weekdays.

Investment: Cryptocurrencies or stocks? web3africa.news

Investment: Cryptocurrencies or stocks? [Photo/ NewsBTC]

Investment: Cryptocurrencies or stocks?

Many investors capitalize on diversifying their portfolios by investing in both crypto and stocks.

Ultimately, the success of any investment is tagged to a trader’s ability to weigh the risks and rewards and not the investment tools available. 

Read: Is crypto addiction having the same effects as drug abuse?

Advantages of investing in cryptocurrency

  • Cryptocurrency is borderless and is accessible to anyone with an internet connection. 
  • There are no regulations by a central authority in most cryptocurrency systems, making crypto resistant to censorship and control.
  • Cryptocurrencies are not directly influenced by monetary policies from central banks, so their prices are less malleable to inflation.
  • Compared to stocks, crypto holdings are more flexible as they can be put to more use besides trading. For example, staking, providing liquidity and yield farming.

Disadvantages of investing in cryptocurrency

  • The crypto market is recurrently prone to dramatic price volatility. As fast and high as the prices rise, the same way they can drop.
  • The lack of defined crypto regulations makes these digital assets prone to unlimited attempts to manipulate their systems and scam their users without legal condemnation.
  • There is no crypto security recovery means once a trader forgets their password and loses their seed phrases. This makes it easier for a trader to lose custody of their cryptocurrencies.
  • Cryptocurrencies do not have guaranteed market returns. While bitcoin and other cryptocurrencies have performed well in the long term, there is no guarantee that they will continue going up in the future, as evidenced by the ongoing crypto crash.

Advantages of investing in stocks

  • Stocks are easier to access than crypto. Many mobile apps and online platforms are emerging in the stock market. There are easier to access and operate than the crypto exchanges.
  • There are regulations in the stock market, making the market free of scammers and enhancing investor protection.
  • Stocks are partially inflation resistant. Certain types of stocks, such as Treasury inflation-protected securities (TIPS), can act as a hedge against inflation.
  • A wide selection of stocks across different industries and sectors are available to retail investors.

Disadvantages of investing in stocks

  • Volatility. The stock market is not immune to sudden changes in prices in the short term. If a company is doing well, its stock prices will likely increase. Similarly, if a company reports losses, the stock value will drop.
  • Stocks are more expensive to purchase than cryptocurrencies. With any amount, a trader can be able to buy bitcoin. They are other inclusive charges that accompany with stocks, including brokerage fees and commissions.
  • There are no guaranteed returns on stock purchases.

With this information, you as a trader will have the necessary information that will help you choose what better suits your risk tolerance between the two investment channels.

Read: Africa: The urgent need for regulations to protect crypto investors from fraud and scams

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