Crypto Assets And Investments: Bitcoin Vs Stock Market Trading Comparison
In the pursuit for wealth and financial freedom, many people either choose to invest long term, building a portfolio in the process or trade certain investment assets on a frequent basis.
While both strategies involve some sort of buying low and selling high, the former involves investing for years, while the latter can be a daily, weekly or even monthly activity.
While there are quite a few financial instruments belonging to the asset class, the two most commonly used ones are the stock market and cryptocurrencies.
Although, the foundational investment principles are essentially the same thing, but they are quite different in their functioning. Let’s examine and compare both instruments, shall we.
Stock Trading And Investing
Stocks are shares issued by a publicly listed company and sold to investors as equity in exchange for the capital that the investors are willing to part with. The activity of buying, selling and investing in these stocks is often carried out on the stock exchange or market.
For investors, stocks are bought with the intention of holding on to them for a long time, during which they will hopefully appreciate in value. Investors are often paid dividends on every stock they hold and/or given more shares in the form of a rights issue.
Given the current state of the market, successful stocks are estimated to generate an average ROI of 7 percent year on year. Many do way more, others, less. But the 7 percent is the going industry average.
Approved stocks are listed on the stock exchange –a centralized platform connecting stock brokers, buyers and sellers- and available for investing or trading.
For those individuals who don’t want to bother with long term returns or prefer a more active investment portfolio, these people opt for the frequent trading of financial instruments in their investment portfolio.
Stock trading is often contingent on the premise that the company’s stock price will increase in value after you buy and hold it, then you can sell for some profit.
For instance, if a stock’s price opens at $10 per share on Monday, and appreciates to $12 at the end of the week, traders can easily sell those shares and pocket $2 per share as profit.
Investors can easily find all the listed shares in the stock market, where they are usually listed by category and industry. These days, all stock trading is done through the use of computerized trading systems.
It really doesn’t take much to open a stock trading account these days, thanks to computing and internet. Setting it all up usually takes no more than a few minutes and you’re up and running.
The good thing about the stock market however, is the verification and vetting process. All companies are properly vetted before they are listed on the exchange.
So, you can be sure that when you invest in most stocks, you’re investing in established companies with a proven history of making money.
When you set up a stock trading account, you’ll have to choose a stock broker – a designated stock trading professional- who will execute your orders, following laid down instructions.
All stock exchanges in the US, have a price regulation mechanism, as all 11 of them are linked together and tend to show the same prices across board. The reality is that all trades you execute go through a stock broker who executes your orders.
The combination of the platforms, system, regulation and non-government meddling helps keep the stock market and exchanges trustworthy, and ensures that investors’ monies are secured.
Cryptocurrencies, Exchanges And The Market
Cryptocurrencies on the other hand, are essentially digital currencies that represent either an existing technology or concept. Investors can use them to build wealth, while traders can use them to make money, through frequent trades.
Most individuals to trade cryptos do so with the intention of using them as a store of value. This way, when they appreciate in value, they can then sell for a tidy return on investment.
The year 2017, saw some of these cryptos record returns as high as 1000X. That means if you invested $1,000 in that particular crypto, you’d have grown it to $1 million in less than a year.
The major appeal of cryptos lies in its decentralized non-government nature. All tokens are listed on privately held exchanges where they are traded and exchanged.
Unlike the stock market however, cryptos do not go through any regulatory process to ensure they are listed. In fact, now that it has become even easier to create crypto tokens, all it takes is for someone to have an idea, and they can launch their tokens within days.
This makes the market very volatile and risky to invest in. The good news is most investors know this already, so they go in with their eyes open, understanding that the market may or may not swing in their favour.
Cryptocurrency values often appreciate based on community and developer sentiments. If people believe in a project, chances are it will appreciate in price owing to increased demands of the currency.
For that to happen though, the project has to be seen as a great project with excellent potential at the very least, or a working product at best. People have to believe that it’s worth it for people to invest in it.
Once people adopt the token, you can be almost certain that its price will grow, resulting in a decent returns for you as an investor or trader.
The major problem that cryptocurrencies as an asset class have is their volatility. This can be both good and bad. Good in the sense that you can enjoy a 200-300 percent ROI in under a week.
Bad in the sense that you can lose as much as 90 percent of your money in the same time frame. This volatility makes it a high risk investment instrument. Unlike the stock markets that provide upper single digits ROI per year, and is a more conservative instrument, cryptos are high risk.
The lack of oversight and regulatory structure means that the tokens are susceptible to price manipulations, pump and dump schemes, outright scams and so much more.
Smart cryptocurrency investors know this, so they do their due diligence and only back truly useful or proven projects. This way, no matter what happens, they can be in it for the long haul, and not bother about short term price fluctuations.
There’s a huge number of cryptocurrencies to invest in –currently over 1800, which makes it difficult for new investors to invest smartly. If you’re ever in doubt about which cryptos to invest in, just focus on the top 100 coins. These are somewhat proven to have valid use cases as well as tangible products too.
How Cryptocurrency Trading Differ From Stock Trading
The major difference between both markets lie in the absence of stock brokers. Trading is directly carried out by investors and traders. There are no brokers needed to execute trades.
You can easily set up your account and get running within minutes. Trading is done on either centralized exchanges or decentralized exchanges, and can be done by anyone regardless of your expertise.
The only thing you need to familiarize yourself with are the exchanges. And one you’ve seen one, you’ve most likely seen it all, as most platforms are identical.
The second major difference is the technology driving the cryptocurrencies. Blockchain technology is the technology driving the success of cryptos and the creation of the tokens themselves.
This means that unlike the stock exchange and market which hosts different stocks from many industries, the crypto market is basically dependent on just one technology to run. Every single cryptocurrency out there runs on blockchain, but that’s a great thing because blockchain is incredibly secure, immutable, and decentralized.
The third feature lies in its universality. Cryptocurrencies can be traded from just about anywhere in the world. Whether you live in the poorest nations of Africa or the US, everyone can through the internet, trade their cryptocurrencies and build their portfolios if they like.
This is different from stock trading that often requires you to be a resident of the country whose stocks you want to trade. And if you’re not resident, you must have approval to work and trade in those countries.
Cryptocurrencies have provided the single biggest investment opportunity known to man, making it possible for anyone regardless of their backgrounds and location to make their own fortune.
Understanding how both markets work is just as important as the risk factors and profit potential. You need to be sure of your risk tolerance before deciding on which market to trade.
Some investors like conservative assets, while others prefer high risk assets in their portfolios. You have to decide what works for you. Some investors prefer a portfolio that combines both conservative and high risk assets.
At the end of the day, the choice is yours on the best route to follow towards gaining financial freedom and building an impressive investment portfolio.