Is Cryptocurrency a Safer Investment Than the Stock Market?
Last updated on June 8th, 2023 at 03:03 pm
Cryptocurrency and stocks differ in many ways, so it is important to understand the differences when considering which type of investment may be best for you.
Cryptocurrency offers a number of advantages over traditional stock investing including greater security, privacy, flexibility and immutability because of blockchain technology. Crypto also allows investors to control their private keys, thus providing full control over their crypto assets.
With the increasing popularity of cryptocurrency, more and more investors are turning to it as an alternative to traditional stock investments.
I will explore some of the key differences between cryptocurrency and stocks, as well as why investors may want to consider investing in cryptocurrencies over stocks.
Let’s begin with a quick understanding of cryptocurrency and stocks.
Before investing in cryptocurrency, remember, this is NOT financial advice, I am NOT a financial advisor. You need to do your own research (DYOR) before investing and don’t invest money you can’t afford to lose. The results that I have experienced does NOT guarantee you will have the same outcome.
What Is Cryptocurrency?
At its core, cryptocurrency is a digital asset class designed to work as a medium of exchange. These assets use strong cryptography and consensus protocols to secure, maintain, verify and regulate themselves.
Cryptocurrencies are decentralized and exist on a blockchain. A blockchain is a distributed database that allows for secure, transparent and immutable data storage.
The technology ensures that transactions are securely recorded in an immutable ledger and shared among multiple independent computers in a peer-to-peer network. This makes it almost impossible for anyone to manipulate or tamper with the data.
Having at least a basic understanding of blockchain is a good idea if you are considering investing in cryptocurrency. This post will provide you a basic understanding of the technology.
Cryptocurrencies can be broken down further into coins, tokens, stablecoins and privacy coins.
Learning as much as you can about cryptocurrency should be a priority before you are sinking any money into a project. However, the entire learning process can be a bit daunting.
Because of this, I have written a few articles to be your guide and make sure that you cover all the bases. If you’re ready to begin this journey, start reading here.
But, if you just want to continue on from here, I suggest that you read my post about exactly what cryptocurrency is before you consider investing.
What Are Stocks?
A stock is a security that represents partial ownership in a publicly traded company. When you purchase shares of stock in a company, you are essentially buying a small portion of that company.
For stocks that produce dividends, when the company earns profits, shareholders receive a disbursement. These dividends are a portion of these profits that is distributed among investors.
Stocks are generally regulated by government agencies such as the Securities and Exchange Commission (SEC). Theoretically this makes them a more secure investment than cryptocurrencies, however it also makes them more restrictive in terms of what type of investments can be made and by whom.
Comparing Cryptocurrency and Stocks
Cryptocurrencies and stocks differ in many ways, probably the most significant and important way being that cryptocurrencies are decentralized while stocks are centralized.
Additionally, cryptocurrencies provide more privacy than stocks. This is due to the regulated nature of stock markets. KYC is required to invest and trade.
Currently, cryptocurrency markets are less regulated and have fewer restrictions than traditional stock markets. This is frankly a double edged sword as it allows the potential for major monetary gains as well as the potential for extreme monetary losses.
Furthermore, cryptocurrency regulation is currently being drafted across the globe, especially in the United States. However currently, rather than providing regulatory clarity, the SEC is bringing various crypto related projects to court attempting to prove that they are securities and thus should be regulated by their agency.
Lastly, as I’ve mentioned many times in the past, cryptocurrencies are the most volatile assets on the planet. Extreme price fluctuations are the norm in crypto, whereas due their centralized nature, stocks are often more stable in price.
The bottom line is, it’s important to understand the differences between cryptocurrency and stocks before you can make an informed investment decision.
Importance of Investment Diversification
While it is my belief that cryptocurrency provides most people with a superior investment opportunity, as well as an alternative economic system, having all your eggs in one basket can be problematic.
When it comes to investing, diversifying your portfolio is essential. Investment diversification helps investors spread their risk across multiple asset classes and industries in an effort to reduce exposure to any single company or sector.
Especially in today’s economy, diversifying between asset classes is important. Some of the most prominent options today include crypto, the stock market and precious metals.
By diversifying your investments, you can maximize potential returns while at the same time reducing risk by limiting losses should one or more of your investments perform poorly.
However, diversification also includes within an asset class. So, for example in the crypto space, spreading your money into crypto industries, such as oracle networks, currencies and layer 1 protocols.
In the stock market an example could be spreading risk between multiple sectors like technology, energy and healthcare.
Moreover, having some investments in precious metals such as gold is also prudent. If you are interested in dollar cost averaging into gold, check out Acre Gold.
Sometimes deciding whether or not to do things can be helped by creating a list of pros and cons. Let’s do just that to help you decide what is right for you.
Investment Advantages & Disadvantages
As with most things in life, everything you get involved with has both advantages and disadvantages.
Investing in general carries inherent risks such as market downturns, devaluation of the underlying asset or company and of course tax ramifications.
It’s important to understand all of these points before making any investment decisions. Ultimately, investing requires time, effort and research. However, when done correctly, investing can provide a substantial return over time including putting you in a good position when it comes time to retire.
Let’s review all the pros and cons of investing in cryptocurrency and stocks.
Pros & Cons of Investing in Crypto
| Pros | Cons |
|---|---|
| Potentially high returns | Risk of losses due to price fluctuations |
| No commissions & low or no fees | Lack of regulation and consumer protection |
| Low barriers to entry | Uncertainty of future regulations |
| 24/7 trading | Risk of fraud |
| Easy access to a variety of coins, tokens and projects | Technology can be intimidating for novice investors |
| More privacy than traditional markets | Difficulty evaluating projects and understanding the underlying technology |
| Potential for long-term growth | Hacks on centralized entities in the space |
| Faster transaction times compared to traditional markets | Lack of liquidity in some markets and coins |
| Ownership of the crypto asset | Complexity and fees connected with transferring funds to exchanges |
Investing in cryptocurrency can be a very rewarding and exciting experience.
As I continue to mention, investing in crypto carries with it a certain amount of volatility and risk, but if done correctly, can bring a substantial return over time.
This is also a good time to point out that having proper online security is important, no matter what you’re doing in the crypto space.
Security is so critical, I have devoted an entire series of articles to break down improving your safety online. You can start learning more here.
Before making any investments in cryptocurrency be sure to do your own research (DYOR) and be prepared for the potential upside and downside of investing in crypto.
Pros & Cons of Investing in Stocks
| Pros | Cons |
|---|---|
| Potentially higher returns than other asset classes, such as bonds or cash | Market downturns can result in losses |
| Diversification across a variety of sectors, industries and companies | Commissions and fees charged by brokerages |
| Easy access to fundamental data and analysis tools | High level of competition within the stock market |
| Low barriers to entry with most brokerages offering fractional share trading | Lack of access to certain stocks or markets |
| Professional guidance available from investment advisors | Difficulty evaluating companies without detailed research and experience |
| Increased liquidity compared to other investments | Lack of liquidity in some small and micro-cap stocks |
| Greater transparency than some other investments | Limited or no control over the company’s management decisions |
| You don’t actually own the stock | |
| Personal investment and stock trading apps can freeze or prevent trading | |
| Limited trading hours |
Investing in stocks can be a great way to diversify your portfolio and potentially earn higher returns than other asset classes. This is primarily due to the amount of choices at your disposal.
However, stock investing also comes with risks. These include market downturns and the commissions and fees charged by brokerages and funds.
As with all investing it’s important to do your own research before investing in any stocks. This includes the best sectors for potential long term investments given current macro economic trends.
Other Investing Considerations
While the advantages and disadvantages listed above should provide you with a good direction when it comes to deciding whether crypto is a preferred investment class over stocks, there are some other items you might want to consider.
Time Horizon
The length of your desired investment horizon should be a key factor in determining not only which asset class to invest in, but which sectors within those classes.
Assuming you are making investments for your retirement, your age and the number of years you have before retirement is a critical component of your investing strategy.
Market volatility plays a major factor in your investments as well.
Combining those two factors together along with determining how many more years you have before you retire can be part of the magic sauce.
The more years you have before retirement, theoretically more risk you can take because you have a longer time horizon for markets to recover.
So, before you begin investing, determine your desired investment horizon and plan accordingly. This will help you narrow down the best options for achieving your financial goals.
Portfolio Management
Having someone manage your money seems normal to most people. Afterall, most of us were never taught how to manage our money in school.
Frankly, I believe this is on purpose so it has been easier to manipulate the masses with the current banking system.
But before I wander too far off track… you need to consider whether or not you want someone else to manage your investment portfolio or not.
This is true whether you’re investing in stocks or cryptocurrency.
Ultimately you have the ability to manage your own investments in either arena… and honestly, if you have enough money, you can have someone do it for you in either space as well.
Personally, I believe that this is where cryptocurrency has an amazing advantage.
With proper research and a proper investing strategy, you can potentially make your money work harder for you than any money manager.
Furthermore, this advantage is increased even further due to the fact that you control your private keys, thus you are the only one in control of your crypto assets.
It should be noted that there are apps which allow you to manage your stock portfolio, although these have proven problematic in the past. With these apps, you don’t actually own the stocks like you do with crypto assets.
As such, these apps are able to freeze accounts and prevent you from trading as you wish.
One of the most popular and recent examples of this was when average traders forced Wall Street funds into losing positions until of course the government intervened on behalf of Wall Street.
Crypto & Stock Investing Upshot
At the end of the day, both crypto and stocks offer a variety of benefits and drawbacks when it comes to investing.
No matter where you land on the investment scale, it’s important to evaluate each asset class carefully before investing. Not to mention, continuing to monitor your investment over time.
Remember that diversification both between asset classes and between sectors of a particular asset class, is key to mitigating your overall risk.
However, with a bit of research and due diligence you can be successful whether you decide to invest in crypto, stocks, gold or all of them.
Frequently Asked Questions (FAQ)
1. How do I buy cryptocurrency?
Buying cryptocurrency is simple. Find a cryptocurrency exchange, create an account, verify your identity, fund your account and purchase your desired crypto. Learn More
2. What should someone new to crypto invest in?
For someone new to cryptocurrency, deciding what crypto to buy can be an overwhelming experience. The best way to decide is by spending some time researching each coin you’re interested in… and of course, never invest more than you can afford to lose. Learn More
3. What type of online security do I need to invest in crypto?
To ensure the safety of your crypto investments, it is important to take precautions. Using a virtual private network (VPN), two-factor authentication (2FA) and strong passwords are just the beginning. Learn More
4. Do I need a cryptocurrency wallet?
Yes, a cryptocurrency wallet is necessary. It provides a secure place to store your private keys. Wallets also provide user friendly interfaces which allows you to easily send and receive different types of cryptocurrency. Learn More
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