The Difference Between Stocks and Crypto
Stocks are a mysterious idea to pursue. The industry has done a good job of trying to make the inner workings of the concept as cloudy as possible, so the rest of us have trouble understanding the jargon and technicalities, making a world where Jordan Belfort can exist.
Then imagine trying to wrap your head around crypto. A much newer concept that shares a lot of surface level elements with stocks. Luckily, crypto is considered the stock of the people, and there is a much healthier discussion of sharing ideas and advice found online.
But understanding the difference between the two can make or break your crypto investment. They are not the same concept and approaching crypto like it is stock is a good way to end up burned. If you want to take the first step into crypto and understand the difference, read our guide.
- 1 The basics
- 2 Anyone can make crypto
- 3 A volatile market
- 4 The risks
The biggest differences between stocks and cryptocurrency come down to the tech behind it. Crypto is enabled by blockchain technology which allows for a much more secure transfer of money due to its end-to-end encryption techniques.
Crucially, crypto is also its own decentralized system, meaning that it has no need to go through the bank, which is achieved with its peer-to-peer technology. It’s seen as the people’s money since the bank’s policies cannot affect it.
However, because crypto is a fairly new concept, despite it going more and more mainstream, there is still a lot of wary eyes on it. You will still see skepticism around the idea everywhere. Stocks are backed by companies, with the risk being in that if the company doesn’t grow, your investment won’t either. Crypto, on the other hand, lives and dies on the hype, and will disappear if it is forgotten.
Anyone can make crypto
Crypto gained its “rebellious tech” reputation through, firstly bypassing the banks, but also the fact that anyone can become a blockchain ledger and create their own currency. The first few cryptocurrencies were in fact made by bored programmers.
However, stocks need to be cleared by government agencies and audited to get off the ground. They also have a lot of regulations to adhere to before they can even join the market. They take a lot of red tape that keep investors from losing their money unfairly.
The other side of this is that there is a lot of voices discussing how to ride the crypto wave. As mentioned, there is a lot of people discussing and advising online. You can read subreddits and follow Facebook groups for tips, advice and enquiries. If you are wondering how to buy Dogecoin, for example, you can visit a subreddit, follow a Facebook group, etc. but if you are looking into stocks it will take a professional with experience in the field to understand what to buy and when to sell.
A volatile market
There are different levels to volatility within each of these markets. Crypto, for example, is mostly valued on its reputation, which is why the ninth biggest coin at the moment is one that was born from a meme.
This makes cryptocurrency unpredictable, with very high highs and very low lows inflicted by events you wouldn’t think to look out for, like a celebrity Tweet. It’s important to know this difference if you are a stock investor looking at crypto.
Stock investors tend to hold during low times, secure in the knowledge that things will eventually level out, but crypto is unpredictable so you have to know your choice of coin will recover from looking at past crashes. You can look at the pricing history of the coin to see if it has recovered in the past.
Stocks and crypto both come with their own sets of risks. Stocks, being fundamentally created as fundraising funnel for a business, entirely relies on the success of that business. With a lot of factors like the economy, the business plan, and other elements all affecting the success of the business, this can soon feel less secure than you initially thought.
Whereas the risk in crypto is whether you think it will last and what it will be used for. Unlike stocks, crypto can be used for a number of things, since it is data. Assessing the risks of a cryptocurrency involves reading the accompanying white paper that outlines the initial purpose, but also the long-term vision of the coin. If you like what the paper says the coin is intended for, and you see no red flags elsewhere in your research, you can invest.
The ambition of the team is the most important aspect in assessing risk. If the team has a plan to keep the coin going for a further 5-10 years, you will know they have the ambition to maintain and grow their coin, and your investment can grow with it. However, if they have no plan, that is an indicator that they plan on dumping the coin or see it as a quick way to make money, and you will lose your investment along with the team’s commitment.
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