Crypto vs Stocks: How Do Stocks and Crypto Compare

What's the difference between cryptocurrencies and stocks? Read on to find out.

4 min read
Key Takeaways
  • Stocks have a long-standing history of being a financial instrument that gives its owner partial ownership of the equity in a business. 
  • Cryptocurrencies are digital forms of currency that operate using blockchain technology and are secured by cryptography. 
  • Cryptocurrencies do not necessarily convey ownership of a business or company like stocks do, but they do offer a variety of novel opportunities for passive income that are not available to stockholders. 
  • Both investment vehicles offer valuable opportunities for financial growth, but investors should be aware of the risks involved and accept the reality that returns are never guaranteed with either stocks or cryptocurrencies.

Global stock markets have a long and storied history that dates back to the early 1600s when the first modern stock was created in Amsterdam by the Dutch East India Company, which kicked off a trend that would come to dominate the global financial landscape. 

The system of fractionalized ownership of companies has proven to be a reliable source of both long and short-term returns since the dawn of the stock market age, and the concept is now in the process of transforming to fit into the digital world.

This change has given rise to cryptocurrencies. Comparing crypto vs stocks, cryptocurrencies are a new type of financial instrument available to traders and investors that are seen as an alternative to more traditional assets and have their own unique set of pros and cons. 

Here’s a look at the similarities and differences between cryptocurrencies and stocks and a review of the positives and negatives that come with investing in each. 

What Is a Cryptocurrency?

A cryptocurrency is a digital form of currency that operates using blockchain technology. Cryptographic techniques are used to verify transactions and secure the underlying blockchain network which enables cryptocurrencies to be used as a store of value and a medium of exchange. The vast majority of cryptocurrencies run on peer-to-peer decentralized networks and their market value is driven by supply and demand. 

What Is a Stock?

Comparing stocks vs crypto, a stock has historically been a physical certificate that represents the partial ownership of equity in a business and reflects the value of the underlying company. In some instances, stock certificates also entitle their holders to a share in the profits of the company, which is known as a dividend. The value of a company’s stock can change based on a variety of factors including the company’s performance, major announcements and other relevant developments. 

Differences Between Stocks and Cryptocurrencies

Stocks and cryptocurrencies are both investment vehicles that can be used by investors to build wealth, but each comes with its own positives and negatives. 

So, is cryptocurrency a stock? Technically, no crypto is not a type of stock, as purchasing a cryptocurrency doesn’t convey a share of ownership in a company like purchasing a stock does, and crypto investors don’t receive a dividend in the same manner that stock owners do. To earn passive income with cryptocurrencies, crypto investors can lend their tokens out or stake their holdings on a blockchain network. 

Some of the biggest differences between the two investment vehicles are how assets are traded on crypto vs the stock market, with crypto markets operating in a 24/7 fashion allowing traders to exchange them any time, day or night, while stock exchanges have limited operating hours and are closed on weekends and holidays. 

Choosing which asset to invest in generally comes down to the individual preferences of each investor and their level of risk tolerance. Many experienced investors opt to go the route of diversification in their portfolio which leads them to get exposure to both stocks and cryptocurrencies in a manner that aligns with their long-term goals and level of acceptable risk. 

Cryptocurrency Investing Pros and Cons

  • Accessible - Cryptocurrencies operate in a borderless manner which allows anyone with an internet connection access. 
  • Decentralized - Most blockchain networks operate free from a centralized authority, allowing cryptocurrencies to be resistant to centralized control or censorship. 
  • Inflation-resistant - Cryptos aren’t directly controlled or influenced by the monetary policies of central banks, so their prices are less affected by inflation. This can be a significant factor in the decision of whether to invest in stocks or crypto. Individual cryptocurrencies offer different rates of issuance and total supply, so it’s important for investors to do their due diligence in terms of judging inflation resistance.  
  • Flexible - Investors have more ways to increase their crypto holdings besides trading when compared to stocks. Examples include staking, yield farming and providing liquidity. 
  • Varied - Many cryptocurrencies offer a value proposition that extends beyond simple monetary value. Examples include governance rights or exclusive access to certain clubs or token sales for holders of a specific crypto asset.  
  • Price volatility - Comparing crypto vs stocks, the cryptocurrency market is perhaps most famously known for its dramatic price swings and wild volatility that have the potential to offer quick gains for investors. Unfortunately, the potential for rapid loss comes along with this, so investors should exercise caution. 
  • Custody risks - Digital wallets where cryptocurrencies are stored require a private key or seed phrase to access, and funds are unretrievable if access to that key or phrase is lost.
  • Imperfect regulation - There is not a set of globally accepted regulations for cryptocurrencies and they are legal in some jurisdictions while being outlawed in others. This is an important consideration when deciding whether to invest in stocks or crypto, as It is up to individual investors to be mindful of their local laws to ensure that they remain in compliance. 
  • No guarantee of a return on investment - Like all financial markets, there is no guarantee of a positive return on investment in cryptocurrencies and individual investors should be aware of the risks involved before investing.

Stock Investing Pros and Cons

  • Accessibility - Advancements in technology and the internet have helped make it easier to invest in stocks with many of the top brokerages offering online platforms and mobile applications for trading, making both stocks and cryptocurrencies valuable opportunities for online investing 
  • Regulated markets - Stock markets are heavily regulated by governments around the world which helps to offer a greater level of protection for investors. 
  • Wide variety of choices - There is a large selection of stocks available in a multitude of industries and sectors for retail investors to choose from. 
  • Semi inflation-resistant - There are certain types of stocks, such as Treasury inflation-protected securities (TIPS), that offer investors a reliable hedge against inflation.
  • Price volatility - Similar to cryptocurrencies, both stocks and cryptocurrencies can have periods of sudden price changes in a short period of time. Volatility can be isolated to one stock or sector of the market, and some stocks can remain relatively stable while others experience a rapid swing in price. 
  • High fees - The fees associated with transactions in the stock market are generally high and more numerous than those found in cryptocurrency trading. This can include brokerage fees and commissions along with other charges that can accompany the purchase or sale of stocks. 
  • No guarantee of a return on investment - True of both stocks and cryptocurrencies, there is no guarantee of a positive return on investment with stocks, and individual investors should be aware of the risks involved before investing.
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