Every experienced investor understands the importance of building a diverse investment portfolio. Investing your hard-earned cash into different types of investments, including commodities, stocks, real estate, bonds, and lately, crypto currencies, helps spread the risk.
However, before putting your cash into an asset, you must know its strengths and weaknesses. For instance, stocks and cryptocurrencies are drastically different investment assets. Whereas the two are liquid assets that you can categorize on the volatile side of your portfolio, their similarities end at that point.
What are cryptos and stocks?
Cryptocurrencies are digital asset types that developers create and store digitally. Stocks, however, refer to a certain percentage of a company. These definitions indicate the basic difference between the two asset types. There are plenty of differences between cryptos and stocks, and before you invest your money, you must understand what sets them apart.
Here’s a detailed comparison indicating the main differences between cryptocurrencies and stocks.
Most investors consider stocks as liquid assets, but with cryptos, their liquidity differs from one type of cryptocurrency to another. For example, the liquidity of Polygon is minimal compared to Bitcoin, owing to their trading volumes.
Additionally, both crypto and stock investors may arrive at a point of tackling slippage. Often, this occurs when an individual sells a huge chunk of an asset during a low liquidity period. It leads to losses for the investor. Nevertheless, crypto holders have a greater risk of this occurring than stockholders. Therefore, liquidity is one of the things that differentiates stocks from cryptos.
With stock assets, you must possess a brokerage account to complete the transaction of buying stocks. Often, your brokerage account is validated with the help of personal details, including signature, social security number, and address, among others. The main objective of these details is to guarantee to protect users in case of identity theft or fraud.
However, when it comes to cryptos, you have an opportunity to be more anonymous, which is awesome! After you buy your crypto assets, you can store them in a digital wallet, which can be hardware or software. Additionally, you can learn how to make an NFT and sell it through crypto exchange platforms, making crypto ownership less complicated than stock ownership.
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While it’s awesome to remain anonymous, that can also pose some risks. For example, as an innocent investor, you may lose your investments to potential spammers. Or perhaps you forget the login details to your crypto wallet. If you own a hardware wallet, which is often available on a USB drive, you may misplace or lose it. Such circumstances may lead to the loss of all your investment.
Stocks are sold and bought through licensed exchange platforms across the world. These platforms provide investors transparency, security, and stability and are designed to accommodate big daily trading volumes. Additionally, exchange platforms are rigorously regulated, offering protections to investors.
On the other hand, exchange platforms for trading cryptos are relatively newer. Although they are new, there are dozens of exchanges, including Coinbase and Binance, the two largest among them. Some crypto exchange platforms have partnered with third parties to seamlessly exchange traditional currencies, like the U.S. dollar, for cryptocurrencies.
Investing in crypto or stocks involves much volatility and risk. Stocks are pretty volatile, but the volatility has increased in the past few years. Fortunately, there is plenty of information to help you know when to and not to invest in stocks.
Although the two assets are volatile, cryptocurrencies are extremely volatile. That means the chances of cryptos undergoing different changes suddenly are higher. For example, Bitcoin, the pioneer cryptocurrency, is extremely volatile.
5. Trading Hours
Often, cryptocurrencies are available for investors to trade at all times. Therefore, you can access them irrespective of the time of day. On the contrary, stocks are only available for trading during business hours, and these hours depend on the specific home country.
If you’re a novice investor interested in finding the right asset type to invest in, determining the strengths and weaknesses of each asset is paramount. The above key differences, for instance, can help you decide whether to invest in stocks or cryptos.