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Cryptocurrency has been gaining a lot of attention recently as one of the most recent digital investment currencies that one can invest in.
It’s no wonder that more and more people are investing in cryptocurrency for a passive income flow while others are well into activities involving crypto, like mining.
That said, many are still confused about how crypto differs—particularly when compared to stocks, which have been around for some time and are pretty established as investment tools.
To clarify this confusion, we have put together this article that will explain in detail crypto vs. stocks, their similarities and differences, as well as their pros and cons.
- Core Difference: Crypto is a decentralized digital currency secured by blockchain; stocks represent ownership in a company and are tied to its performance.
- Volatility: Crypto is highly volatile with rapid daily price swings; stocks tend to be more stable and react predictably to economic factors.
- Regulation: Stocks are tightly regulated by government bodies like the SEC; crypto remains mostly unregulated and vulnerable to scams and policy shifts.
- Accessibility: Crypto trades 24/7 globally via apps; stocks are limited to market hours and often require intermediaries.
- Similarities: Both offer growth potential and portfolio diversification opportunities for investors.
- Crypto Pros/Cons: Decentralized and fast-growing but unbacked and highly risky due to regulatory uncertainty.
- Stock Pros/Cons: Stable and regulated with long-term gains, but not ideal for short-term profits.
Table of Contents
What is Crypto?
According to PwC, “A cryptocurrency is a medium of exchange such as the US dollar, but is digital and uses cryptographic techniques and protocols to verify the transfer of funds and control the creation of monetary units.”
In short, crypto is a decentralized virtual currency (not controlled by the government) that can be exchanged and traded just like other currencies. It uses cryptography for security, which ensures that it is secure and to avoid counterfeits.
What are Stocks?
On the other hand, stocks are equity tied to a portion of a company. In other words, owning a particular company’s stocks would mean that you share ownership of a publicly traded company. You will gain capital appreciation or dividends through stock ownership.
Crypto vs Stocks: Comparing the Key differences
Now that we understand what crypto and stocks are, let’s take a look at some of the major differences that both have when compared to each other :
| Key differences Crypto vs Stocks |
Cryptocurrency | Stocks |
| Technology | Uses cryptography or blockchain technology to ensure safety | Traders can trade on stock exchanges |
| Volatility | Very volatile – differences are often seen on a daily basis | Relies on the company’s performance and the global economic climate |
| Risks | Uncertain regulatory framework, which differs around the world, open to hacks and fraud attempts | Changing government rules or changing business rules can have a major impact, resulting in market crashes |
| Accessibility for Investors | Accessible to every individual investor directly, 24/7, through available crypto apps in the market | Usually traded during market hours or business hours only |
Technology
One of the key differences between crypto vs stocks is the technology that powers them.
As mentioned, crypto is powered by blockchain technology, which does not allow anyone to alter or manipulate transactions.
Thanks to blockchain technology, cryptocurrency is safe but it is still vulnerable to hack attacks or software bugs.
On the other hand, stocks are tied to the equity of a company and therefore are supported by the performance of said company.
The trading of stocks is also dependent on the stock exchange which is a more traditional infrastructure when compared to cryptocurrencies.
With that comes limitations that restrict the accessibility to investors which we will cover below.
Volatility
A little research will tell you that cryptocurrencies’ market volatility is extremely high, making them a pretty risky investment. But hey, high risk, high reward, right?
That said, if your risk appetite is large enough, you can definitely consider investing in cryptocurrency, bearing in mind that its price can swing up to 10% in a day.
Although it can mean that you have the chance to make some short term gains, it definitely is pretty volatile and therefore riskier.
If you view stocks in terms of volatility, they are pretty stable compared to cryptocurrencies. This is largely because it does take a very major event for the market to crash badly, for example, the COVID-19 spread in 2020.
Most times, stocks’ volatility does not cause them to crash; rather, it can be somewhat predicted based on the economy and the company’s performance, making its volatility almost predictable and slower.
Risks
Although backed by technology enough to keep cryptocurrency safe from manipulation, the largest risk an investor will face is the lack of regulation around cryptocurrencies.
Since cryptocurrencies have gained popularity in the last decade, they still have very little to no oversight from governments in some countries.
Since its existence, many investors have lost funds due to these risks, and there is no recourse to recover cryptocurrencies, especially when they involve scams and fraud.
There will also be a constant fear of sudden government rules that might ban cryptocurrencies.
However, with stocks, the companies offering stocks are heavily regulated from the start. A company must meet stringent requirements of the Securities and Exchange Commission (SEC) before offering stocks.
Insider trading is also generally illegal. Rules also govern what happens to investors who hold shares of a company should it close down or go bankrupt.
Although they are not risk-free, stocks are far more regulated, giving investors like yourself peace of mind.
Accessibility for Investors
Since cryptocurrencies are global and digital, investors can have direct access to mine, buy, or sell at any time of the day. As long as you have a phone and you’re connected to the Internet, you can invest in cryptocurrency.
With stocks, however, while technology has brought about popular platforms like Robinhood and eToro, where investors can buy stocks anytime, the market is only open during regular work hours, i.e., Monday through Friday, 9 am to 5 pm.
This poses a slight restriction for those who wish to access foreign stocks.
Crypto vs Stocks: Finding the Similarities
With crypto or stocks, you will find many major differences. However, they also share a few key similarities. Let’s take a look at some:
Diversifying investment for investors
Investors can always turn to both crypto and stocks to maintain a diversified portfolio.
Many savvy investors tend not to put all their eggs in one basket and diversify their investment to ensure that risk is diversified, since they have invested in different asset classes.
This is one of the key similarities that crypto and stocks share.
Growth potential
Growth potential is another key similarity that both crypto and stocks share. According to Bloomberg’s Crypto Outlook 2021, Bitcoin gained 120% growth in 2021, and Ethereum gained 500% growth.
Stocks on the other hand have indeed made some investors millionaires. Although it is often a ‘long game’ with many companies, the sudden boom for tech companies like Amazon and Tesla has made investors grow their investments almost overnight.
That said, though crypto tends to provide faster gains, stocks too, have delivered growth steadily over a period of time.
Pros and cons of investing in Crypto
Pros
Decentralized nature: Many prefer crypto vs stocks because it is not tied to any financial institutions like banks or even the government. Investors believe that this situation will help them overcome inflation and so prefer investing in crypto than other traditional investments.
Increasing acceptance of digital coins: Some companies, like Tesla, were once happy to receive Bitcoins as payments, although this has been reversed since. With growing interest and acceptance in cryptocurrencies, many investors are positive that they will gain from them.
Cons
No asset backing: Cryptocurrencies are not backed by any asset compared to other forms of investment like stocks, gold, or even houses and buildings. That becomes a major downside as no actual value is placed on the coins. They can be irrelevant at any point in time.
Risk of changing regulations: Some countries, like China, have entirely banned cryptocurrencies while others fully embrace them. With the uncertainty that cryptos present, it might not be the safest investment that one can make.
Understand more about more about the advantages and disadvantages of cryptocurrency as an investment.
Pros and cons of investing in Stocks
Pros
Highly regulated: Before a company can start offering stocks, it must undergo stringent vetting and procedures. This ensures that the company can indeed survive and ‘pay back’ its shareholders. This makes stocks one of the safer investment forms despite risks and market volatility.
Long-term gains: For years, the stock market has delivered long-term gains for its investors, indicating that it is a form of investment you can hold on to on a long-term basis. Although volatility exists, it is rare for the stock market to cease its existence, especially when compared to cryptocurrencies.
Cons
Not for short-term gains: Stocks can be volatile, especially on a daily basis, but in the long run, they can help recover any daily losses an investor might incur. That said, it might take you years to see gains, unlike crypto, which can swing positively and negatively on a daily basis.
Conclusion
Whether you’re a beginner in investments or you’re looking to diversify your portfolio, we hope that this article has helped you gain clarity on cryptocurrency vs. the stock market.
It’s always important to measure your risk appetite before making any investments, whether crypto or stocks.
This article clearly shows that if you prefer something long-term and highly regulated, you should consider investing in stocks.
On the other hand, if you are an avid investor looking to diversify your portfolio, seeking something with higher reward, and do not mind the risks, then crypto can definitely be a good investment.
The most important thing to do is to be entirely comfortable and knowledgeable before investing in crypto or stocks. Make sure to strategically build a portfolio that includes a little bit of everything while focusing on growth.
FAQ
References
- https://www.pwc.com/us/en/industries/financial-services/fintech/bitcoin-blockchain-cryptocurrency.html
- https://assets.bbhub.io/professional/sites/10/1489771_Crypto-Dev2021Outlook.pdf
- https://www.cnbc.com/2024/08/08/bitcoins-volatility-makes-it-a-risky-investment-experts-say.html
- https://www.sec.gov/resources-small-businesses/going-public