The recent May 2022 crypto crash has left investors with a jaw-dropping loss of $830 billion! It’s self-explanatory why several investors are having serious doubts about investing in cryptocurrency after the crash. Many investors are even contemplating shifting straight to the stock market from crypto being apprehensive of the security of their investment. Well, before you too opt for the same shift, this is to remind you that BTC has been predicted to touch 100,000 by the final quarter of 2022. ETH is expected to rise by a whopping 400% after the Merge. Check out more at Multibank.io.
The crypto market itself is expected to grow by 5x within the next 7-8 years. Bottom line is, despite the recent colossal crash, the crypto market speaks of high potential. Now, that doesn’t undermine the significance of the stock market but just offers you another window for investment.
So, which one shall you go for? Would you sign up for the good old stick market or you have plans for investing in cryptocurrency? Well, if you get into the debate you must develop a clear understanding on both the assets and their respective trading markets.
Stocks can be defined as a sort of equity that represents a part of ownership of a company. If you invest in a company’s stock, you will have a claim on the cash flow and assets of the firm- the level of claim will depend on the range of your share.
Stock market is characterized by constant fluctuation in price. The fluctuation quotient is driven by the level of demand claimed by the stock among the investors. If a bunch of investors make a large purchase it shows that the stock is in “demand”. And, high demand drives up the stock prices. Likewise, if a stock has not experienced major investor activity in a long time, the stock price might take a dip.
But, the key factor that determines the up and down of a stock- in fact, its very existence- is the underlying success of the respective company. A company might be having low stock prices as of now but if the firm works harder and is able to take the organization to newer heights in near future- its stock prices might shoot up to the moon.
In other words, the fluctuations or swings in stock prices are widely determined by something substantial, something tangible.
Cryptocurrencies are a type of digital asset that primarily serves as currencies. You can now use them to make payments for services and goods while they also serve as stores of value. Despite the harshest of criticisms, the crypto industry has only grown ever since its inception- and is poised to foray into the mainstream market in all its glory. Some of the largest and iconic companies in the world are investing in cryptocurrency. The number of retail or individual investors is also growing in the crypto space of late.
One of the major characteristics of the crypto industry is its extreme volatility. Stock market is no doubt volatile but stock fluctuations are merely minor in comparison to that of crypto. The crypto market can go up or down by even 70% in as little as 7 days. Stock fluctuations are comparatively less aggressive.
The major driver behind wild crypto fluctuation is public sentiment. Though cryptocurrency has been introduced to serve a greater purpose (democratize economy) yet the value and price of the cryptos are largely driven by public demand and reputation of the coin. Last year in May, BTC prices immediately crashed down by around 17% the moment a leading EV manufacturer announced to not accept BTC payments citing environmental issues. On the other hand, the same BTC had reached its ATH in the latter quarter of 2021.
Put simply, if a crypto is receiving support from the industry, the price will rise. But, the moment someone throws a bad rap, the same crypto might plummet down to abyss. In fact, a cryptocurrency might end up as completely worthless and even cease to exist if it does not receive investor attention for a long time.
Difference between stock and crypto
Now that you have gathered a basic idea about the two popular investment vehicles, let’s have a quick comparative study between the two.
Safety and sustainability
As mentioned above, stocks are linked to the existence of a valid company. The success and failure of the company will determine the stock prices. The stock will last as long as the company is in existence- even if it is not getting any investors.
Unlike stocks, cryptocurrencies are not linked with any tangible or substantial asset, except the stablecoins. Thus, if no one is investing in cryptocurrency, crypto will struggle to exist.
Based on that discussion, stocks are more of a sustainable and safer option compared to cryptos.
Stock market is heavily regulated while the crypto scene is infamous for lack of regulation. This is another point where the stock market scores over crypto, in terms of safety.
Stock market only allows trading on business hours. Crypto market, on the contrary, is open 24/7/365.
Range of profit
As crypto is characterized by extreme volatility, it offers a way higher range of returns in comparison to the stock market.
Which one would you prefer for investment?
Well, crypto is certainly not for the weak-hearted while stock is a comparatively safer option for investors. If a crypto takes a dip, it can reach the lowest of lows in no time. But, if a coin rises, investors would experience an astronomical growth in their investment portfolio.
Bottom line is- you need to have a high level of risk-appetite for investing in cryptocurrency. If you are confident of your risk-tolerance capacity, crypto could be a rewarding experience for you.
However, you can invest in both stock and crypto if you want to make the best of both worlds. Just one thing, do not invest over 5% if you are investing in cryptocurrency. The major chunk of your investment capital should be allotted to safer investment options.