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Up until 2017, investing in stocks was the go-to strategy for investors, but after the 2017 Bitcoin boom which saw its prices go really-really high, putting the crypto in the spotlight, people started to look at those cryptos as good investment opportunities.
This does not mean that stocks have fallen out of favor with big investors. Stocks still hold a way bigger market share than crypto, but it might not be like that in the future.
Because of this people started asking themselves, which is the better investment, cryptos or stock? These are two different markets that share some similarities with each other. So when it comes to the decision as to which asset we should invest in, there are many different views defending each side.
In this guide, we will discuss each of these sides and compare crypto with stocks. Follow along and learn more about each of these investment options.
There are people who call investing another form of gambling. In essence, it is as if we are putting our money into something with the hope that we will get more in return. To remove this unpredictable side of gambling, investors are doing different kinds of research before deciding where to invest or what to invest in. They weigh risks and rewards and learn everything they can before deciding what is a better investment.
When it comes to crypto and stocks, there are some similarities and differences. Here we will look at both of these assets, as to what they are and how they work.
One of the biggest aspects of crypto is that it is not backed by any hard assets (with the exception of some stablecoins). Cryptos such as Bitcoin and Ethereum are great examples of this, as they hold value by themselves and are not backed by traditional fiat currencies. Cryptos are good for transactions, and it gives us the ability to avoid the need for a third party.
If it’s not backed by any hard asset then what gives crypto its value? This is a question that many ask, and the answer to this question is simply belief. When belief changes so do crypto prices, and these changes can be really drastic. When people believe that someone will buy it for more in the future, prices go up as more people are buying it, and if people think that not many will buy this crypto in the future, prices will fall as people will start to sell off their holdings.
So when investing in crypto, people always think, “Will I be able to sell it to someone for profit and become the next Bitcoin millionaire?”
"..[!with!] it's buying something because you expect the pool of people who want to buy it because they want to sell it to somebody else will grow" - Warren Buffett
Stocks are like small parts of a business. When you own a stock, you become a partial owner of the company. How big of a part depends on the number of shares you own. Unlike crypto, stocks are backed by hard assets in the form of the company itself. This is what gives stocks their value.
So what makes stock prices change? The answer is assessment. Investors look at different factors and evaluate the company's chances of success. We might look at the stock prices and think that they will soon rise in prices, but in the end, the success of the stock depends on the success of the company.
So when investing in stocks, people always think, “Does this company have the ability to grow and succeed?”
When choosing where to invest, crypto or stocks, we need to look at their pros and cons. What advantages and disadvantages does each have?
Let us take a look at some pros and cons of both these assets.
What puts crypto in the spotlight was its decentralized nature. These tokens are not controlled by central banks and governments. While these institutions have control over standard fiat currencies and tend to print them as they please, causing inflation, they hold no sway over cryptos. While cryptos such as Bitcoin have a low-to-no inflation rate.
When we are investing in something, it is always best to have many choices. With the crypto world expanding each day, many different tokens are being developed and released for the public to invest in. This gives investors a huge pool of tokens to choose from. This makes investment easier as investors are not limited to a few tokens and can have diversified portfolios.
Compared to stocks, cryptos can help you earn huge profits. There are many tokens that saw their prices skyrocket after their release. Stock prices don’t tend to have these huge spikes, so investors who are looking to maximize their winnings tend to drift toward crypto.
The Crypto market has been growing exponentially over the last few years. More investors and companies are putting their money into crypto. For example, Tesla holds a large chunk of Bitcoin and for a brief period of time, they even accepted it as a payment method.
As we mentioned before, cryptos are not backed by any hard assets such as fiat currencies. Because of this, they tend to be highly volatile, as their price is determined by people who are willing to buy them or thinking of selling them. Big money can be made in crypto, but it can also lead to huge losses.
When we look at the crypto market we don’t have a lot of statistics to determine whether an investment is worth it. Prices change rapidly and are dependent on trends. While stocks, on the other hand, have fundamental values, they are tied to a company's success and return dividends.
There are many governments that look at crypto with skepticism. These coins are outside their control and are sometimes used to conduct criminal activities. This is the excuse that governments give for so many regulations now being placed on crypto in many parts of the world, with China banning them altogether.
Unlike crypto which is a new concept, stocks have a really long history and have given really good returns to investors. In the short term, some stocks tend to be volatile, but for long-term holding, they are proven to be safe investments.
Previously, investing in stocks was a hard process. But nowadays, with many online brokers lowering their fees and some even charging no fees at all, more people are able to invest in stocks. These brokers also give us the ability to invest in one specific stock like Amazon or to diversify our portfolio with many different ones, which tends to be a safer and better investment option.
We discussed that cryptos don’t have any fundamental value as they are not backed by anything. Stocks on the other hand are tied to companies, and they are valued as much as the company is. These companies also generate money and cash flow and a portion of it is going to shareholders.
Stocks have been around for a long time. Because of this, they have gained the trust of most governments. They are heavily regulated and provide a lot of transparency to investors. There might be some flaws in their regulations, but in general, there are different instruments in place to protect investors.
Stocks are not known for extreme returns. Big stocks like the ones listed on the S&P 500 are known to return around 5-10% in the long run. On the other hand, cryptocurrencies are notorious for turning people with small investments into millionaires.
If we are looking for short-term investments, stocks tend to be volatile in shorter timeframes. To combat this, people started to invest in stock baskets, which are a collection of different stocks. But when it comes to long-term investments, stocks tend to be less volatile.
Lastly, the main thing we have to look at when we are deciding which is a better investment for us is the investment timeframe.
If we are looking for fast gains, investing in crypto is a better choice. Crypto tends to be really volatile and can spike unbelievably high. Because of this, we should always have our eye on the market and follow it. So if massive gains are a part of your trading goals, then investing in crypto is a smart idea. There are many different crypto trading strategies that we can use to maximize our returns.
On the other hand, if we are not looking for faster returns and have the funds to buy shares and leave them for years, then investing in stocks is a much safer way to go. Stocks are commonly used as retirement investments, and they are usually left untouched for decades, some of them even give dividends as an added bonus. With less volatility, in the long run, they are known to give people a really pleasant retirement.
“It’s nice to see a positive move as opposed to a negative move, certainly. But at the same time, for investor purposes, it’s not a particularly comforting move. Certainly, an investor would much rather see a gradual rise with constant floors in terms of downside being established, as opposed to a very, very quick run-up. It could easily be easy come, easy go.” - David Tawil
It depends on what type of investment you are looking for. If you want fewer regulations and potentially higher returns, then crypto should be your choice. But if you want better stability and less volatility then stocks are the better options.
If done right, then yes. Cryptos are notorious for their volatility. This volatility can be seen as a big problem, but if traded correctly, this volatility can become your strongest weapon.
If you are looking for a broker that offers both stocks and crypto, then eToro should be the place you visit. They offer a good selection of both stocks and cryptos.