A Guide to the Similarities and Differences for Beginner Investors

The stock market has been a staple of investment options for generations, while the rise of cryptocurrencies in recent years has shaken things up significantly and created new opportunities for veteran investors and newcomers alike.

From the outside, it’s easy to assume that crypto and stocks are essentially the same; they both provide you with a place to put your capital, with the promise of delivering a decent return further down the line.

However, if you dig a little deeper, the stark differences begin to emerge. Let’s explore the ins and outs of crypto and stocks so that fledgling investors have a foundational understanding of each.

The basics

The first thing you need to get to grips with when comparing crypto vs stocks is what each asset actually is, definitively speaking.

 Stocks are a way of owning a small piece of a corporation. So long as a company is publicly listed, anyone can buy or sell stocks in it, and in return they’ll be eligible to receive a proportion of its earnings, as well as having a say in how the organization is run.

Crypto is a class of virtual assets, usually in the form of digital currencies, such as Bitcoin and Ethereum. They are protected through cutting edge cryptographic techniques, and do not come under the control of one body, but are instead decentralized and deregulated.

The similarities

From an investment perspective, stocks and crypto can have similar applications, although this largely depends on your goals and preferences as an investor.

You can buy and hold stocks and cryptocurrencies in your portfolio, and then sell them further down the line to realize any gains that you’ve made.

This of course relies on the value of the stock or crypto increasing during this period, and so the other main similarity is that there is no guarantee of this happening; you could lose some or all of the money you put into a crypto, just as you might with a stock that tanks because of a company’s poor performance.

The differences

There are plenty of paths down which crypto and stocks diverge, some of which you’ll already have gathered.

One interesting distinction is that of accessibility and liquidity. Buying and selling crypto is a breeze thanks to the variety of exchanges available, and there’s also ample liquidity in the market to mean that you won’t struggle to shift any tokens that you decide to convert back into fiat currency when it’s time to cash out.

Volatility is another point to mention. Crypto assets are incredibly susceptible to sudden spikes in value, as well as rapid declines as well, which means that investing is a bit of a minefield, especially if you’re planning on doing so as a short term money-maker. Conversely, while stocks might take longer to appreciate in value, they are usually a safer bet than crypto, especially if you stick to buying a stake in tried and tested multinational corporations.

Then there’s the aspect of decentralization, which only applies to crypto. The stock market is tightly controlled and regulated, while cryptocurrencies are built to avoid central oversight or government intervention by design.

The final word

Ideally you’ll choose to build up a diversified portfolio of investments which not only includes stocks and crypto, but also other assets. This will hedge against market volatility and leave you less exposed to the inevitably ups and downs of the economy over time.

Be sure to remember that both stock and crypto gains are taxable, and if you choose to invest in either you’ll need to keep the authorities in the loop when filing returns to avoid punitive action.