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Differences between Cryptos and Stocks

Differences between Cryptos and Stocks

July 6, 2021 | 

JOHN K MWANIKI |  0 Comments| 

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Investing in different assets is the best way to grow your wealth and earn a passive income. It is also a way to cushion your loved ones and yourself in case of unpredicted eventualities. If you already have stocks in different exchange markets, it might be great to try the crypto market too. Before dipping your feet into this investment, it is necessary to learn the ropes. Knowing how each works helps you decide whether to invest in both or one of them. 

The stock market has been around for several decades, and there are various exchanges worldwide. Cryptos have been around for about 13 years and are the latest investment frontier. This asset has taken the industry by storm so much so that Wall Street has noticed. Investors and traders are now having conversations on adding cryptos to their portfolios. The digital currency has its challenges, like company stocks. It has remained strong, yet, and is even becoming more mainstream. 

Some major industry players are even including some of the biggest cryptos in their funds. A substantial number of investors can't distinguish between cryptos and stocks. Here are some differences to help you make the right decisions and avoid being burned. 

1.Differences and ownership in the type of assets 

Investors trade in shares or stocks in the stock exchange markets. The stocks that you trade represent equity in a listed company. Once you purchase yours through the stock exchange programs, you now own a part of the actual company. The value of these shares will partially depend on how well the market is currently fairing. Because of company and local regulations, a public company will sometimes issue shares to raise money. 

In a cryptocurrency exchange, you trade in digital currencies like Ethereum. When you buy cryptos, it doesn't represent ownership of part of the company that issued them to you. This asset is a virtual currency which makes its value subjective. Cryptocurrencies are easier to own compared to stocks. The number of tokens or coins in a crypto market is capped. Hence, the value of genuine, capped cryptos should increase as demand grows. 

2.Volatility 


Volatility is one of the factors that raise caution in various markets. Market volatility can be both negative and positive. When there is low volatility, it makes the market and your investments more stable. In these cases, you will need to wait longer to reap any financial benefit. That is typical with the stock market. The larger the trade volume, the more stable the stock exchange. It makes the entire market less prone to shifts caused by the big traders. The stock market is connected to various governments and corporations, which has an impact. 

Unlike stocks, crypto exchanges have higher volatility. Because the market is new, highs and lows tend to be very pronounced. Subsequently, crypto trading is very vulnerable to movements by whale traders. Whale traders are those that own large amounts of crypto. It also makes the market particularly vulnerable to decisions from heavily invested individuals. Luckily, cryptos are mostly immune to political influence. 

3.Market maturity 

Stock exchange markets have been trading for a long time compared to crypto markets. Hence, the former is more mature. Shares markets are regulated and governed by local governments. They also enjoy government backing. Companies listed in the exchanges are obliged to be transparent with the shareholders by making their activities public. That includes financial updates for each quarter and general meetings' minutes. 

Due to their maturity, stocks have trade diversity. They also enjoy high volumes. On the downside, this maturity allows abundant opportunities for specific traders to dominate the whole market. It can be disadvantageous if you are a smaller investor. That's because stock exchanges reward the more dominant investors with lower commissions or fees on their trades. Crypto exchanges are still young and continually developing. 

There are measures to increase regulation and increase investor confidence. However, most of these steps are outside of the regulatory sphere. Because of their short history, diversity and volume of traded cryptos are much lower than their counterpart. 

4.Regulations and fees 

This is among the most critical difference between cryptos and stocks. Stock exchanges are heavily regulated. These rules are meant to protect investors and traders, maintaining a level playing field. Apart from the regulations, the fees associated with this market are pretty high. Your broker will charge you a fee, and so will the bank when making your payments. Additionally, these financial institutions will also tax your capital gains. 

Cryptocurrency trading requires fewer costs. Also, the fees you incur for transacting on the blockchain are meager. They are mainly mining fees. Therefore, crypto exchanges overall cost less when trading digital currency than stock market brokers. Apart from that, the cryptocurrency exchanges remain free from regulation. 

Industry players still support an increase in regulations in this marketplace. With time you might get to see more rules applied to crypto trading

5.The market reach 

Cryptos and stocks differ in their reachability. If you intend to buy some shares, be ready to wait for a considerable period. Because of the regulations associated with stock exchanges, trading can be time-consuming. It will also be energy-intensive. You have to get a good broker and get approval to purchase and sell stocks. Moreover, you will also have to deal with the limited business hours. 

From just the above, you can get a feel of how controlled the stock market is. Contrary to this, you can trade your cryptos 24/7, even during holidays and major events. Anybody can trade in digital currency, which makes it more accessible despite your social standing. Starting is also relatively simple, allowing for swift exchanges.

Conclusion 

These are but the most significant differences between cryptocurrencies and stocks. Remember that it is possible to profit and make losses with these two options. As you would before making any investment, ensure that you do adequate research. The five differences provided above are a great starting point. 

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Total Market Cap The Total Market Capitalization (Market Cap) is an indicator that measures the size of all the cryptocurrencies.It’s the total market value of all the cryptocurrencies' circulating supply: so it’s the total value of all the coins that have been mined.

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