The difference between stocks and cryptocurrencies for investors

If you have money to invest, you might be wondering whether it’s best to put it into cryptocurrencies or more traditional opportunities like stocks. Both can be used to successfully build wealth, and like all investment options, both come with their own risks. But cryptocurrencies and stocks are two very different things.

In this AAG Academy guide, we’ll look at why they’re different, the pros and cons of both investment options, and why investing in cryptocurrency has become so popular.

What is cryptocurrency?

Cryptocurrency is a form of digital currency that is powered by blockchain technology and secured by cryptography. It can be used for many different things, depending on the type of cryptocurrency you invest in, and its value is determined by supply and demand.

Under the cryptocurrency umbrella, you’ll find both coins and tokens, as well as different token types — such as utility tokens, security tokens, and governance tokens. You can read more about these in our AAG Academy guide to cryptocurrency.

Security tokens are the closest alternative to stocks since they represent ownership or rights of an asset, which could be anything from property to vehicles and even a piece (or share) of a company. However, they’re still not quite the same thing as traditional shares.

What are stocks?

Stocks represent ownership of a fraction of a company. They give investors the opportunity to purchase a small portion of a business, and therefore the right to vote in shareholder meetings as well as the potential to earn dividends if they are distributed. The more shares you own, the greater your vote, and the larger the portion of profits (dividends) you get.

There are two main types of stocks: common and preferred. Preferred stocks do not give voting rights in the same way common stocks do, but they do provide a higher claim on assets and earnings. Preferred stocks receive dividends before common stocks, and they have priority on assets if a company goes bankrupt and is liquidated.

Much like cryptocurrencies, stocks are listed on an exchange, where they can be bought and sold by anyone who is interested in trading and investing in them. A company’s value is determined by the price of its stock, which tends to fluctuate depending on the performance of the company. Good performance causes the price to rise, and vice-versa.

What are the differences between cryptocurrencies and stocks?

With the right investment strategy, both cryptocurrencies and stocks can be used to earn a profit and build wealth. However, while some people may think of them as very similar, cryptocurrencies and stocks are very different. The biggest distinction is that cryptocurrencies, with the exception of some security tokens, don’t give you ownership of a share of a company.

That means cryptocurrencies also don’t give you the opportunity to earn dividends, but there are alternatives for cryptocurrency fans. For instance, unlike stocks, some cryptocurrencies can be invested into staking schemes and decentralized finance (DeFi) systems that allow you to earn a passive income in other ways.

In a nutshell, cryptocurrencies are digital coins and tokens that can be used for various different things, like paying for goods and services, staking, establishing governance in a project, and more. Stocks allow investors to own a fraction of a company.

Pros and cons of investing in cryptocurrencies versus stocks

Historically, investing in stocks has been one of the most effective ways to build wealth in the long run. Public companies tend to be a lot more stable than most cryptocurrency projects, so stocks are also seen as a much safer investment.

Furthermore, cryptocurrencies are significantly more volatile than stocks, which means that their value tends to fluctuate more significantly — and much more frequently. While some investors may see this is a downside, others see it as an opportunity to turn a quicker profit. That’s assuming, of course, that you make the right moves at the right time.

It’s important to remember, though, that investing in anything is a risky business. There is no guarantee that that a profit will be made or that any cash you put in is completely safe.

You might be interested in: Things to look for before investing in crypto assets

Why has investing in cryptocurrencies become so popular?

One of the reasons why investing in cryptocurrencies has become so popular is that digital currencies are incredibly versatile. We’ve already touched upon a number of ways coins and tokens can be used, but it’s also important to point out the advantages they have over traditional fiat currencies like the U.S. dollar and the euro.

Cryptocurrencies are global, which means you can transfer them between countries in an instant — and with significantly more affordable transfer fees. They cannot be counterfieted like traditional cash, and they are more durable. Furthermore, cryptocurrencies aren’t susceptible to inflation in the same way traditional currencies are.

All these things help make cryptocurrencies popular, but there’s more. Bitcoin’s popularity — and its incredible rise in value over the years — has helped raise awareness of other projects and cryptocurrency industry as a whole. Cryptocurrencies are also more accessible than cash and other investment options, including stocks.

References

• Crypto vs stocks what is the difference
• Stock
• Crypto vs stocks a guide