Crypto vs Stocks, when you want to talk about investment and where you wish to invest your money, especially in different online investments, such as real estate, commodities, bonds, stocks and crypto, it can be so exciting knowing that in the end, you are making cool cash in your pocket but at the same time, comes with different risks which need to be considered.
Investing your money in either cryptocurrency or stock is a choice to make when knowing their differences. Both of them are one of the ways to build wealth and save for your future goals, meaning, creating wealth, meeting a financial goal, beating inflation, and saving for your retirement.
Investors must balance their risks and comfort when considering where they want to invest in either cryptocurrency or stocks. It is necessary to weigh the risks and rewards of investing and what drives the success of your investment.
Stocks and crypto are both considered volatile, but crypto is the riskier investment. – By Evelyn Waugh
In this article, we will be discussing crypto and stocks separately and the factors to consider when deciding where to invest your money.
Understanding Cryptocurrencies
Cryptocurrency is a virtual or digital currency that uses cryptography to secure transactions and control the creation of new tokens. It operates on decentralized networks, which means it is not governed by any authority like the government or banks. The decentralization of cryptocurrency has made it possible for investors and businesses to make peer-to-peer (P2P) transactions without intermediaries, and this has led to an increase in the cryptocurrency’s adoption.
Cryptocurrency was created in 2009 with the emergence of Bitcoin, the first and well-recognized cryptocurrency by groups of individuals using the pseudonym Satoshi Nakamoto, who published a paper-like description of a decentralized electronic payment system. Which is designed to eliminate the problem faced by early forms of digital currency. Since then other kinds of cryptocurrencies have emerged like Ethereum, Ripple, Altcoin, etc., and have grown rapidly even up until now.
The Technology Behind Cryptocurrencies
The decentralization of all cryptocurrencies works through a distributed ledger technology called blockchain which serves as the database of a public financial transaction. Bitcoin emerged in 2009 through this technology and the success of bitcoin has led to the emergence of other cryptocurrencies in the crypto market, such as Litecoin, Ethereum, Ripple, Altcoin, etc.
Reasons To Invest In Crypto
There are several reasons why cryptocurrencies are growing rapidly and are well-recognized worldwide. But I want to point out just a few and they are as follows:
- They are well structured around the mystery of digital currency and well organized.
- At the moment, they are highly volatile with the crypto value being high.
Right now, as the world is increasingly connected across global boundaries, combined with our trust in completing transactions, universal payment is necessary.
Many investors are drawn to investing in cryptocurrency due to the strength of its price. Take a look at bitcoin in 2013, it was sold at $15 per coin, and right now, it has skyrocketed to above $4000 per coin. You can see the huge differences since the inception of Bitcoin. This has led many investors to step into the system to invest, and as such, cryptocurrencies introduce many kinds of cryptocurrencies and create many crypto exchanges for users to invest in, such as coinbase, bybit, cash apps and other brokers, including mining bitcoin. Let me show you the steps on how to invest in cryptocurrency by mining Bitcoin.
Steps To Take For You To Invest In Cryptocurrency
Step 1: Get Yourself Involved
For instance, if you want to invest in any crypto exchanges like Binance, Bybit, Coinstore, Bitcoin, etc. You must have a significant amount to invest, upgrade your system and keep monitoring the crypto market conditions
Step 2: Purchase Mining Hardware
Know that Bitcoin is mined through a decentralized network but with custom hardware, which is used for better processing. So, purchasing a Bitcoin Miner is very competitive, as you will compete with others to see who is the highest earner. As an investor, you will have to mine your bybit or bitcoin with any amount you can purchase. The popular Bitcoin hardware are Cointerra, Bitcoin Ultra, and so on, and you are set to start your Bitcoin mining
Step 3: Obtain Your Wallet And Secure It
In Bitcoin mining, you must have a wallet to manage your transactions. As a newbie to Bitcoin, I can recommend Breadwallet. Take your time to learn how they work and ensuring that you know your private keys and wallet address after signing up and keep it safe, is very important.
Step 4: Download the Software And Join The Mining Pool
Pick up your software, download it, and search for a mining pool. Know that a mining pool is a community of Bitcoin miners that work together and share the profits.
Step 5: Keep Updated
Keep updating your software, wallet, and even your hardware anytime your system pops up for updates.
Advantages And Disadvantages Of Cryptocurrency
We will be discussing the advantages and disadvantages of investing in cryptocurrency.
Advantages of Cryptocurrency
- It removes the possibility of a single point of failure, just like a big financial institution that sets off a cascade of global crises.
- With the use of peer-to-peer (p2p) transactions, it’s easier to make transactions without intermediaries. Such transactions in a decentralized network are secured by the use of private and public keys and forms of incentive systems such as work proof or stake proof
- Since it eliminates the use of third-party intermediaries, it makes the transactions between the two transacting parties faster than in the banking system.
- You generate profits when you invest in crypto, as its market value over the past years has skyrocketed to above $2 trillion. Presently, bitcoin’s value alone is above $565 million in crypto markets.
Disadvantages Of Cryptocurrency
- It attracts hackers who make use of ransomware or other cybercrime activities to defraud their investors of their assets.
- Since it is decentralized, their wealth or assets are being distributed among many parties using blockchain technology. Ownership is highly concentrated in reality.
- Anyone mining crypto like Bitcoin requires reasonable energy, sometimes as much energy as the entire country consumes. Meaning, it’s expensive to participate in a network and make profits.
- Although it’s highly secured, the crypto-related key storage such as wallets and exchanges, can easily be hacked. Over the years, many crypto exchanges and wallets have been hacked, which has caused many investors to lose all their assets
Exploring Stocks
Stock can be referred to as equity. It is a security that represents the ownership share in a company or corporation. A unit of stock is called a “share.”. When you buy a company’s stock, you’re purchasing a small piece of that company.
Investors buy stocks in a company knowing the value will rise, and if that happens, the company shares will increase in value as well. Then, the stock can be sold for profit. Owning a stock in a company means you are a shareholder due to your sharing in the company’s profits.
How Stock Works?
Many companies or corporations sell their shares through a stock market exchange, just like NASDAQ, the New York Stock Exchange (NYSE), etc. Companies issue stock to raise funds to operate their businesses, pay off debt, or launch new products, according to the SEC.
For investors, investing in stocks is a way to grow their money and outpace inflation over time. As a shareholder of a company, you have a claim to part of the company’s assets and earnings. When the stock price rises, you will make profits; you will also earn dividends when the company distributes earnings, and some shareholders can vote at the shareholder meetings.
Let’s take for example, a company with about 1,000 shares of stock outstanding and one individual owns 100 shares out of 1000 shares, that person would own and have a claim of 10% of the company’s assets and earnings. To sum it up, investors in stock earn money in two ways:
- If the stock price rises during the time you own it, and you sell it for more than you purchased it,
- You earn through dividends. Dividends are regular payments to shareholders. But note this, not all stocks pay dividends, and those that pay dividends, do it quarterly.
Types Of Stocks
Mainly, there are two types of stocks, and they are common stocks and preferred stocks. Their main differences are the dividends and the voting rights. We will distinguish the two main types of stocks.
Common Stocks
Most investors own this type of share in a public company. Investors are entitled to vote at shareholder’s meetings and receive any dividends paid out by the company, but this is still not guaranteed as the amount of the dividends is not fixed.
Preferred Stocks
They do not have voting rights, though they have higher claims to assets and earnings than common stocks. Excess cash distributed by dividends is paid to the preferred shareholders first, even if the company goes bankrupt. Preferred stock owners receive any liquidation of assets before the common shareholder.
Advantages And Disadvantages Of Investing In Stocks
Advantages of Investing In Stocks
- You can build massive wealth with high liquidity. Investors can make profits in different ways, either by buying shares that pay dividends or through price appreciation. Another way to make profits is through trading, and the reason for that is to earn money frequently.
- Staying ahead of inflation, that is, beating inflation in the long term, is inevitable even in well-functioning economies. But now, the value of money today will not be the same in the future due to the increasing prices of products. So, investing in stocks helps you stay ahead of inflation and helps your assets grow.
- Ease and security of the stock market. Partaking in the stock market is relatively easy. Even newbies with no financial background and no investing experience can readily buy shares or participate in pooled equity funds through different agencies and means. For instance, direct stock investment can be done at home through online stock brokerage and trading platforms. Investors and institutions can also invest indirectly through asset managers and select different types and selection of pooled funds.
- You can start with a little money or any amount you can afford. You do not need a huge amount of money before you can invest. Start with the little you have and invest in a few shares of stocks. Keep doing it over time, then increase the size of your investment, and you will see your assets grow.
Disadvantages of Investing In Stocks
- It’s investments are very risky. Note that the market can be volatile due to its sensitivity to current events and other developments that may occur, not only in the economy but in national and international political affairs.
- For newbies, it may not perform well over your particular investing period, while stocks tend to outperform lots of alternative investments over long periods but returns are not guaranteed.
- It takes time, not weeks or months, but years, like five (5) to ten (10) years. Your money might be growing by 10% of your profits annually, but after a few years, it will grow by 50% and above of your profits annually, after a decade. You will have to wait and be patient to be a great earner.
Factors To Consider Investing In Crypto Vs Stock In 2024
Before you can decide to invest in crypto vs stock, or both, as the case may be, let’s mention the factors involved for both crypto and stock in 2024.
For Crypto Investment In Crypto Vs Stock In 2024
Regulatory System
The government’s regulation of crypto is still evolving. But it’s very important to stay alert on the latest developments concerning crypto regulation and how it will transform your investment
Security
If you want to consider investing in crypto, you need to be aware of possible hacker attacks on your cryptosystem, especially crypto exchanges and wallets which are mostly the main targets of cyber attacks. So ensure you choose any good exchanges and wallets that take security seriously
User Awareness
Unlike traditional finance, there is no way to cancel the crypto transaction after you have already sent it.
Programming Issues
As an investor, you will use an automated smart contract to control the movement of your deposits and that can cause you to lose your investment if you are using it to assume the risk.
The Market Trends
This is the rise of decentralized finance (DeFi) that is powered by smart contracts and are self-executing contracts used to automate a huge number of financial transactions.
For Stocks Investment In Crypto Vs Stock In 2024
Economy Growth
That is the major drive of the stock market performance. The positive impact on the global market can be determined if the global economy continues to recover from the pandemic. But if there is a slowdown in economic growth, it will lead to a decrease in market value.
Inflation
The major concern for investors in recent months is inflation. For instance, if the interest rate is high, the inflation will be increasing which could negatively impact stocks. However, if inflation is constantly under control, the market will continue to perform well and effectively.
Interest Rates
These can impact the cost of borrowing for businesses and individuals, which can have a ripple effect on the markets. So if the interest rate is low constantly, the market could benefit. But if the rate rises, it will impact the stocks negatively.
Its Current Market Trends
The current ongoing war in Ukraine and Gaza will have a significant impact on the global economy, it will lead to higher prices and inflation, which will put pressure on making profits.
Take a look at the twitter quote concerning crypto vs stock market
Evaluating Risk And Returns Of Investment In Cryptocurrency And Stock
The concepts of risk and returns on investment are the most important concepts we must consider. Risks are the potential for loss that comes with any investment you decide on, while returns refer to the gain or loss of investment that an investor will realizes from their investments. Generally, the principle of high-risk investments can give better returns to investors and vice versa. Hence, the price of the risk is reflected in the returns. Meaning, the risk of a particular investment is directly related to the returns earned from it. To evaluate risk and returns of investment on both crypto and stocks is
Volatility
Both cryptocurrency and stock are considered risky investments. However, cryptocurrencies that are not regulated by the government have high risks and high returns due to their high volatility. Stocks are also volatile but not as high as crypto but more regulated by the government than crypto.
Diversification
Between cryptocurrency and stocks diversification allows investors to reduce the overall risk associated with their portfolio but may limit their potential returns. If the market sector outperforms the overall market investing in one market sector, it will generate superior returns but if the sector declines, it will generate lower returns than what you can achieve with a broadly diversified portfolio.
Trading
If you want to liquidate your investment at any time then crypto is a worthy asset to consider. There are lots of crypto exchanges to trade with that are accessible to anyone on the internet. But stocks are limited to regular business hours as trading times, this restriction adds a competitive edge for stock investors interested in trading regularly.
Crypto Vs Stocks: Where To Invest?
It now comes down to choosing where to invest in crypto vs stocks or both if you have enough funds to invest. However, your choice might be to devote a small segment of your portfolio to speculative capital, which goes into high-risk, high-reward assets. So, it depends on how much funds you can invest in any portfolio, but some experts are advocating for at least 5% of your investment or you should invest what you don’t need anytime soon.
The benefit of diversifying your portfolio is that, if the market value massively increases, your returns will be very high and drastically increase the value of your overall portfolio. At this point, you can decide to sell your portfolio and take your funds back to your reliable assets not leaving 5% of your portfolio tied up in investment volatility.
Conclusion
The decision to invest in crypto vs stocks ultimately comes down to your personal financial goals and risk tolerance. Both options have their advantages and disadvantages and it’s important to weigh them carefully before making a decision. By following the guidelines outlined in this blog post, you can make an informed decision on how to invest your money in 2024 and the years to come.
