Stock Market Vs. Cryptocurrency: Which One is the Best Investment Option for You?
Cryptocurrency has risen a lot since the time of the pandemic. Bitcoin had outperformed tremendously within six months of the pandemic, and it increased its value by 500%.
At the start of 2020, when covid cases were increasing, bitcoin was trading at roughly $7,000 and within a month it was trading at $40,000. This shows massive growth.
Investors are putting more money into this new tool without much knowledge. However, investors are questioning the choice of the stocks in their portfolios by viewing higher returns on investment through cryptos.
Investors were going with the flow of the market, they didn’t understand that every investment has its pros and cons.
Here are some major differences between stocks and crypto that investors must know to take better investment decisions.
- Stock gives ownership of a company to shareholders. In contrast, cryptocurrency doesn’t give any rights because it doesn’t have any assets at its back.
- Volatility in stocks is higher but it rarely but making a total loss rare, if you invest in industry giants. On the other hand, crypto is also highly volatile and chances are always higher to make losses. See the chart of the Dogecoin,
If you’re thinking to start investing in crypto or stocks, it’s essential to collect all the information first. Do the fundamental analysis of every investment tool and ask how it’s different from other investment methods.
Here’s a detailed analysis of the pros and cons of stocks and cryptocurrency to save you time.
Why Investors Make Loss?
Every investor must know the risks and rewards of investing and how it will give them good returns. If an investor does not have enough knowledge about investment, then they go with the flow of the market, which may cause them loss.
In this case, it will not be an investment; it’ll look more like gambling.
A Detailed Overview of Stocks
Stocks give ownership to stockholders proportionately to the assets and cash flow of an organisation. They mainly issue their shares to raise funds for business operations.
Stocks can be bought and sold mainly on the stock exchange through government or private brokers. In India, there are two stock exchanges National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
As per the data, the stock market has outperformed in past decades. See the NIFTY50 chart.
The price of stocks moves as per the events of the market, such as during month start prices are slightly high and during month end, it goes a little low (as per market analysis). However, the profit ultimately depends on how the company performs in long term.
Pros of Investing in Stocks
Stock investment provides many advantages to investors:
[1] Massive Returns in Long Run
It has been seen that stocks can generate high returns successfully over the long run. As we see in the NIFTY50 example above. It’s not denied that stocks have volatile nature, but you don’t have to worry about the returns if you hold good companies' stocks.
[2] Easy To Access
Nowadays, it’s easier to invest in stocks than before. Many online stock brokers provide multiple options to invest.
Zerodha is a platform which offers excellent services at low cost than its other competitors. They increase their profit by 2.6x times in the financial year 2021.
If you didn’t start your investment journey yet, check my link to get your demat account done. Once you have a demat account now you can buy and sell your favourite stocks.
[3] Strict Regulations
The stock exchanges, brokers and companies are regulated by government authority. Indian markets are regulated by the Securities and Exchange Board of India (SEBI). If anyone is found breaking the rules, they will be punished as per the SEBI’s laws.
Cons of Investing in stocks
Investing is not the same for everyone in every situation, check some cautions of the stock market before jumping into the market:
[1] Volatility
The nature of stocks is volatile and their movement depends on different factors. If you purchase stock in a single commodity such as tech, it will be more volatile than the index funds. See the charts of Tata Consultancy Services Ltd and Sensex.
As we see in the charts NIFTY50 is less volatile as compared to TCS stocks.
The rate of return is explosive in the short term, but it will be a good return on your investment in the long time.
[2] Not give Highly Massive Returns
In continuation of the above example: NIFTY50 is a mix of different top 50 stocks so the interest gain is the average of all stock performance. In contrast, there are different types of stocks but the high-risk stock will also give you a 20% to 25% return. For cryptocurrencies, it is not that big a deal to move that much in a day.
It is all about
A Detailed Overview of Cryptocurrency
In many countries, it’s legal to invest in cryptos, but still, there are some countries where cryptos are banned such as China, Nepal, Egypt, Bangladesh, Iran and Turkey.
There are no hard assets at the back of cryptocurrencies, so there are no security and rules to save investors money. It also increases the illegal cash flow out of the country.
Why is the nature of cryptocurrencies volatile?
As mentioned above, there is no hard asset at the back of crypto; the only thing the crypto prices fluctuate is speculation driven by investors' sentiments.
With the change in sentiment, the price also changes and sometimes it changes drastically. So, cryptocurrency is based on the theory that the price will rise when someone buys more in the future.
Pros Of Investing In Cryptocurrencies
Crypto provides many advantages to investors:
[1] Decentralised Nature
Cryptocurrencies are not controlled by any government authority, and some people call it ‘digital gold’ because it doesn’t change according to inflation.
[2] Expect Extreme Gains
People who invest in cryptos look for extreme returns compared to any other investment option. It has been seen that some cryptocurrencies sky-route their prices after their first launch. As shown above.
These gains are reasons why a considerable part of investors start investing in cryptos, but there’s a point that should be noted before investing in cryptos.
Note: High Return comes with Higher Risk
[3] Multiple Options
In the start, when cryptos were just launched, there were few coins in which you invest, but now there are thousands of cash from which you can choose.
Cons of investing in cryptocurrencies
Some cons which can cause investors money are:
[1] Extreme Volatility
In the starting, when the cryptocurrencies were just launched, it can be seen the volatility in their price. Also, it changes as per the sentiments of investors.
[2] Cybersecurity Risk
Cryptocurrencies don’t have any assets on their back. Then, in this case, if the coins are stolen, it’s challenging to recover the stolen amount.
[3] Regulatory Risk
Cryptocurrency is a decentralised currency which is the most significant advantage of this, but there are government regulations behind this then it's a riskier investment than stocks. It’s accessible to fraud in Bitcoin transactions as they are not protected by law.
[4] Limited Use
Many big companies like Microsoft have started accepting Bitcoins, but still, it’s not universally accepted. For us, it’s easy to spend money through debit or credit card, but with cryptocurrency, it’s not as easy as with other traditional methods.
The Bottom Line
Since cryptocurrency’s first launch, it has given massive returns to some investors, but remember that many people lose their money. And this needs to be understood before investing, and first, know why you’re investing and where. There are no benefits to investing by viewing others, and after that, know your risk tolerance and financial needs.
If people want to earn good returns, they can do this without investing in cryptocurrencies. Some legends only invest in stocks and are billionaires now, and some of these are Warren Buffet, Rakesh Jhunjhunwala, and many more.
