Investing in Crypto vs Stocks: A Full Suite Comparison

Cryptocurrency has taken the world as a gold rush. The fast rise of cryptocurrency has many investors reconsidering the role of digital assets in their portfolios and dealing with a hotly debated topic - “Stocks or Crypto?” While both types of assets offer the potential for significant returns, they are fundamentally different in many ways.

In this article we will be putting crypto vs stock market head to head by running through advantages and disadvantages of both. Without further ado, let’s dive right into it!

Stocks vs Crypto: 8 Key Differences Explained

At a first glance it seems that crypto and stocks have more in common than differences. But, in reality, that couldn't be further from the truth.

While with stocks you are investing in companies that have a real value, like enterprises, oil or gold, with crypto you are investing in code and its value solely depends on how much people are willing to pay for it. 

Cryptocurrency is unregulated meaning that there is no legal authority to protect investors and consumers from fraud and scams. Stock market, in turn, comes with transparency - once corporations go public, they must disclose any information impacting the value of their shares. Investors have become so confident with stocks that now there are whole schools and careers dedicated to it. 

The wild price swings of digital coins and the fact that you can multiply your deposits overnight lure savvy investors. You have probably heard that crypto is a roller coaster and understanding the principles of how it works will give you an outlook on how bumpy the road is going to be. 

We will discuss eight key differences that set crypto market vs stock market apart to decide which strategy suits you best.

Stocks vs Cryptocurrency: Ownership Rights

Owning a stock means that you own a share of the issuing corporation. Essentially it enables you to receive dividends - a fraction of company’s revenue (if they are issued) - vote for or against some corporate decisions and participate in shareholders’ meetings. Stocks were created as a way to raise capital needed for business operations. However, it's not so easy to acquire one. 

Let’s see, if you decide to purchase a share, you will need to have a verified brokerage account. Your social security number, phone number, address and other personal information is checked to prevent fraud and spot suspicious activity.

In case of buying cryptocurrency, there are two ways traders follow:

  1. Purchasing cryptocurrency using KYC crypto exchanges. Cryptocurrency exchanges like Binance allow you to buy, sell, store and convert digital assets only after completing Know Your Customer rule which requires opening up your identity.
  2. Purchasing cryptocurrency using no KYC crypto exchanges. They provide traders with instant access to their platform’s features without having to disclose your identity.

Unlike the stock market, the cryptocurrency market presents investors a choice - staying anonymous or becoming a verified user. 

Crypto vs Stock Market: Regulations

Given the long history, the stock market has experienced decades of regulating processes. After the Great Depression in October 1929, the USA government initiated the development of an administrative body that would enforce consumer and investor protection. The Securities and Exchange Commission (SEC) has been running in the country since 1934 making the stock market a safer place for investors. According to the Securities Exchange Act, companies are bound to disclose any information that might affect the value of their shares. 

On the contrary, cryptocurrencies don’t have any regulatory clarity. What's more,  cryptocurrency regulation itself is a very controversial topic. Decentralization and anonymity are two core principles digital assets are based on and the fact that a single authority will have absolute control over it goes against its original spirit. 

Since there is no regulatory framework, crypto investors have little to no protection in the market. Those who support crypto legislation believe that it could be a healthy addition to the industry reducing assets’ speculation and therefore leading to higher investor confidence.   

There are countries, like China, that have banned all crypto transactions and there are countries like the USA that are exploring ways to integrate digital coins into the global financial system using regulation.

Stocks vs Cryptocurrency: Trading Times

The next key difference between crypto and stocks is when those markets open and close. 

Unlike cryptocurrency, stocks can be traded at a certain hours throughout the day. U.S. stock exchanges as the New York Stock Exchange (NYSE) and the Nasdaq Stock Market (Nasdaq) are open Monday through Friday from 9:30 a.m. to 4:00 p.m. Eastern Time. However, due to the emergence of new technology and rising trading demand, regular hours have been extended to what’s called pre-market and after-hours trading. While pre-market trading allows transactions to start as early as 4 a.m., after-market trading occurs at 4 p.m. and can run as late as 8 p.m. How does after hours trading work? Both pre-market and after-market trading get executed only through limit orders and electronic communication networks (ECNs).

So, a counter question arises: what time does crypto market open and close? That’s one of the best things about crypto trading - it is running 24/7, 365 days a year. Even though many crypto traders consider this as a perk because of the potential opportunities it comes with, continuous order book monitoring is challenging. Be cautious when trading on weekends - due to less trading activity, volatility of crypto assets usually increases. With less trading volume, orders (especially large ones) may take more time to fill which causes slippage and has a huge impact on the market prices. 

Trading Crypto vs Stocks: Economic Volatility

Given the nature of digital assets, more precisely the fact that they are solely based in the digital space, cryptocurrencies are usually referred to as a more volatile asset class when compared to stocks. Still, the stock market, just like the cryptocurrency one, is prone to drastic price swings. If a company reports gains or a piece of good news just came out, stocks are likely to go up in value and vice versa. 

Even though cryptocurrency and stocks are separate asset classes representing absolutely unrelated markets, both charts seem to correlate. In the 2017 Bitcoin price rally, the correlation between Bitcoin and stocks reached historic levels, approaching nearly 0.25.

S&P, Gold and BTC Price charts

A visual representation of the Bitcoin price compared to the S&P 500 over 2017-2018 reveals a noticeable and difficult-to-overlook positive correlation.

Bitcoin and S&P500 price

As Bloomberg illustrated in the graph below, it's worth noting that the peak of Bitcoin's price aligns with the peak of the forward earnings valuation ratio in the S&P 500. However, it's important to consider that this comparison might be somewhat tenuous due to the stock market reaching its peak at the end of January (in contrast to Bitcoin's peak in December), and the fact that earnings estimates were adjusted to higher levels for the year ending December 2018 at the close of 2017.

Bitcoin and S&P Price chart - peaked together and bottom together

Cryptocurrency vs Stocks: Portfolio Diversification

Portfolio diversification is a basic practice used by investors in order to mitigate risks.

Within the stock market you can invest in securities spanning multiple sectors, countries and industries. In theory, even if the aviation sector collapses, you can still keep your portfolio green by being a shareholder in the gold industry. The key rule is not to rely on any particular industries or geographical market but allocating investments across various sectors and countries.

From a cryptocurrency standpoint, there are quite a lot of ways to spread your investments.

The first thing you can do is to expand your crypto portfolio by holding digital assets with different use cases. Here is a list of coins crypto investors can choose from:

  1. Security tokens - used as a tokenized version of financial security, such as real estate (INX Token);
  2. Payment tokens - used as a payment method wherever cryptocurrency is accepted (Bitcoin, Ethereum);
  3. Utility tokens - used to fuel the issuing ecosystem (Binance Coin, Filecoin);
  4. Governance tokens - used by holders to vote on issues associated with decentralized projects (Uniswap, Aave);
  5. Basic attention tokens - used in digital advertising industry (BAT);
  6. Gaming tokens - used to power blockchain-based games (Apecoin, Decentraland);
  7. Non-fungible tokens (NFTs) - used to represent digital content, art or media;

You can also diversify your portfolio by investing in coins that are based on different consensus mechanisms. Proof of Work and Proof of Stake are two most widespread protocols utilized by the majority of crypto assets including Bitcoin and Ethereum. However, if you dig a little deeper in the topic, you will find more than five unique consensus mechanisms enabling faster transaction execution, more decentralization and/or less ecological footprint. All these variables influence the scalability and price of the coin and definitely should be considered when making investment decisions.

Thanks to the nature of blockchain and technological advancements in the industry, cryptocurrency space presents unique opportunities that are unavailable for stock investors such as yield farming, staking, and liquidity provision. If you are unfamiliar with who liquidity providers are and how they make profits, check out our comprehensive article that covers this topic in depth.

Crypto or Stocks: Decentralization and Transparency

If cryptocurrency is all about decentralization and anonymity, the stock market is completely opposite. Stocks are traditionally traded on centralized markets - financial institutions that oversee all transactions. On the one hand, centralized exchanges are more trustworthy and usually more user-friendly for starters. On the other hand, since there is a centralized entity controlling investors’ assets, CEXs are prone to hacking attacks and sanctions. The order books in both stock and cryptocurrency exchanges (CEXs) are fully transparent - anyone can see buy/sell quotes and adjust their strategy based on the findings.

Apart from CEXs, digital coins can also be traded on decentralized crypto exchanges (DEXs). What’s interesting about these institutions is the fact that they don’t have an order book to match buyers with sellers. In turn, DEXs run on AMMs - algorithms that match orders without any intermediary allowing users to make transactions anonymous, quicker and less expensive (from a fees standpoint).

To say that processes inside the cryptocurrency industry are decentralized would be naive.In fact, there are quite a few decentralization issues with crypto assets. 

The first and the most obvious one involves CEXs - traditional financial markets but in digital space. 

The second decentralization problem refers to stablecoins. Take for example USDT - the coin is pegged to the U.S. dollar that is issued by a real centralized entity and it only manages to maintain the peg by holding vast reserves of cash, which raises tension within the crypto community.

The third decentralization concern is associated with blockchains, specifically PoW. Proof of Work is a consensus mechanism that backs up Bitcoin. It has indeed quite a few drawbacks, but we will be talking precisely about mining pools. Essentially, mining pools include individual miners with all their computing power combined to validate a block jointly. Mining pools go against the spirit of decentralization and fairness within the network.

To sum up everything that has been stated so far, cryptocurrency is not perfectly decentralized yet it is the least centralized option for now.

Stock Market vs Cryptocurrency: Long-Term Potential

It is hard to compare asset classes that have an age gap of as much as 200 years.

As of now, both stock and cryptocurrency markets are not doing well. S&P 500 index hit its lowest point since mid July 2022. Bitcoin is slowly recovering from its continuous downward trend and at the time of writing is trading around $20,000.

Nevertheless, these two markets are not going anywhere - it’s obvious that they are here to stay. Stock market has survived centuries of regulations, adoption and fluctuations. The current crash and recovery is just another cycle it goes through periodically.

Cryptocurrency is somewhat similar to stock but at the same time completely opposite. Blockchain is disrupting the financial system - while governments are seeking ways to integrate cryptocurrencies into day-to-day life, some processes are already tokenized. More and more people get used to crypto assets because of their convenience and unique value that no other financial market had provided until now.

Considering the amount of crypto investments brought into the industry during these tough periods, there is no doubt that cryptocurrency will only continue to grow and develop over time.

Stock Market vs Cryptocurrency: Accessibility for Beginners

It is becoming easier to invest in stocks, with many online platforms and mobile apps emerging in the market. Many such offerings have intuitive interfaces and are integrated with other financial services.

If you are just starting your investment journey, the stock market is a perfect place to learn the basics - that’s what most articles say. However, we think that both markets are suitable for newbies when you do your due diligence and research ahead of time.

Investing In the Stock vs Crypto Market: What Should You Choose?

When comparing crypto trading vs stock trading, the second one seems old fashioned but time tested while the first one is all about excitement, quick gains and big risks.

If you are an experienced stock investor that doesn’t want to miss hot opportunities, diversifying your portfolio with digital assets is a wise choice to make. Whether to jump or not to jump into the crypto industry - the answer depends on your risk tolerance and goals.

For some people it might seem that cryptocurrencies are not here to stay, but, considering the amount of projects emerging and effort that have been put into scaling the industry, they definitely worth your attention. So, the question that needs to be asked isn’t will crypto succeed, but what specific token will be successful. Whatever market you pick, always be aware of the related risks and do your own research!

Wrapping up

Stock and cryptocurrency markets open big opportunities for both investors and startup owners. If you are developing a project and seeking ways to raise funds, the stock market may not be the best place to conduct an IPO because of strict regulations and requirements.

Companies transitioning from a private to public corporation must meet a series of strict requirements by exchanges and SEC. Not to mention how expensive and time consuming IPOs are. And that’s when cryptocurrency comes to the rescue! Tokenization is one of a few IPO’s alternatives through which the ownership of a company can be split into digital tokens that act as shares and can be traded by any investor around the world.

Even though the rules in the crypto market are way less harsh, conducting an IPO of your token has its own nuances. The partnership with a crypto market maker is one of the key requirements every startup owner faces when launching cryptocurrency through the Initial Public Offering. 

BitQuant Capital is a leading market maker and liquidity provider in the crypto space. Our team is strongly committed to assisting cryptocurrency-based startups of all sizes in achieving maximum liquidity and trading activity across various pairs and markets.

Since firm’s inception in 2019, we have successfully provided the liquidity for 12 new token releases. 
Kick start your Market Making strategy by consulting with one of our experts or check out the list of our solutions first!

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