Crypto Vs Stocks: Which is the Better Investment Option

Depiction of crypto vs stocks; chart in a smartphone screen, crowded by numerous hundred dollar bills and different crypto coins
Crypto Vs Stock chart

For a long time, investors have had the freedom to invest in different asset classes. However, the emergence of cryptocurrency in 2008 allowed traders to speculate on different coins. Conventional investment choices like stocks, real estate, commodities, and precious metals have been joined by digital currencies.

This article will address the pros and cons of investing in crypto and stocks. We will cover the differences, similarities, regulations, and benefits of trading crypto vs stocks.

Quick Answer
The better investment option between crypto and stocks depends on the kind of investor you are. If you’re willing to take more risks in exchange for a higher reward, crypto is your go-to financial security. On the other hand, stock returns are more predictable and suitable for conventional investors.

The Longstanding Crypto vs. Stocks Argument

In the years following its introduction, cryptocurrency has sparked a lot of enthusiasm from investors. The price of various cryptocurrencies experienced a huge boom in 2017-2018, with the market capitalization reaching $800 billion.

Bitcoin’s price skyrocketed from $900 at the start of 2017 to reach a peak of $19,783 by December. Although the price of top cryptocurrencies went downhill in 2018, they surged again in 2020. In November 2021, Bitcoin’s market cap reached a high of $1.2 trillion, while its nearest competitor, Ethereum, boasted a $540 billion market cap.

For risk-takers, the volatility of the crypto market can be exciting. Once in a while, digital currencies experience a massive price increase that skyrockets an investor’s wealth, especially when they invest in altcoins with smaller market caps.

Nevertheless, the price increase of coins is usually accompanied by a similar devastating crash. Bitcoin and Ethereum are the two coins that have stood the test of time, experiencing high usage over the years. However, several altcoins have disappeared into oblivion, triggering a loss of investor funds.

In this regard, some comparisons can be drawn between the stock and crypto markets. Even if you’re investing in the stock market, there’s no way to accurately predict whether the price of a stock will increase or reduce. Hence, there’s always some level of risk associated with buying stocks.

Still, there are key differences between investing in stocks and crypto coins. You need to be familiar with these variances before choosing how to diversify your investment portfolio.

The Difference in Value Between Crypto and Stocks

The crucial difference between how the value of stocks and cryptocurrencies is perceived is that stock is represented by a business that offers services or products. Most investors looking to invest in stock simply check statistics like earnings per share, P/E ratio, dividend payout ratio, and cash reserves to determine the company’s health.

If crypto ever becomes mainstream and is highly used in daily transactions, there’s a good chance they’ll get traded like stocks. A study has shown that cryptocurrency is now viewed more as an alternative investment and less as a gamble. Nevertheless, crypto has not achieved this transaction level, and the price depends on demand and supply.

Since some of the biggest digital currencies, like Bitcoin, don’t have actual businesses, the price hinges on how much someone would pay for the crypto.

Governance in Crypto Vs. Stocks

The stock market has existed for centuries and has been the bedrock of several economies, including the US. The stock market is so significant that it sparked the Great Depression of the 1930s, rippling through both industrialized and emerging economies.

Due to this reason, several regulations surround the transactions made in the stock market. Every action taken in the stock market, from ownership to management of stock portfolios, is monitored by agencies. Some professionals even build their careers off stock market taxation.

On the other hand, the relatively new financial security, cryptocurrency doesn’t have regulations. Cryptocurrency’s 15-year existence has sparked several debates between the public and agencies about how digital currencies should be regulated.

Some experts feel that virtual currencies are like stocks since investors speculate on them and should be regulated similarly. Other professionals believe that crypto was created to serve as a better option to fiat currency and should be guided by rules pertaining to fiat money. Another group thinks digital currencies are unique and should have a separate rulebook.

Nevertheless, regulations surrounding the crypto market are largely in the works. If you’re open to financial freedom and reduced government intervention, you can go for crypto. If you’re comfortable with the traditional investment world, you can choose the financial stock market.

Similarities Between Trading Crypto and Stocks

Buying a cryptocurrency is not so different from purchasing a stock. You start by creating an account with a cryptocurrency exchange, funding your account balance, choosing the cryptocurrency you want, and placing an order with the crypto app. Within a few minutes, the coins will reflect in your crypto wallet.

Although there are differences in the activities that facilitate the purchase of stocks and crypto, the core process remains the same.

Differences Between Trading Crypto and Stocks

Here are key variations between buying crypto and stocks:

Cost of transaction

Most cryptocurrency exchanges demand transaction fees for each crypto trade you make. On Binance, the transaction fee ranges from 0.02% to 0.1%, depending on the account level. Accounts are ranked based on 30-day trade volumes from Regular Users to VIP 9 accounts.

The Coinbase trading platform levies a 0.05%-0.60% fee on transactions.

In comparison, stock brokers like JP Morgan have begun to allow commission-free trading.

Speed of transaction

Stock transactions are faster than those of cryptocurrency exchanges. Algorithmic trading systems can work flawlessly in the stock market, prompting the rise of high-frequency trading. High-frequency trading leverages speedy computer programs to execute several orders in a matter of microseconds.

Digital currency trades are slower since the transactions need to be approved on the cryptocurrency’s network. Depending on the congestion level, Ethereum transaction times can range from 15 seconds to a few hours. Bitcoin’s network is much slower, with an average of 10 minutes. However, this time can be longer and can take days.

Freedom of holding assets

If you don’t ask for a printed stock certificate, you’d essentially be placing your stock broker as the custodian of your stock portfolio. On the other hand, cryptocurrency investors can decide to leave their coins on a centralized exchange or transfer them to a cold wallet of their choice. When a coin is placed in a cold wallet, it solely becomes the owner’s possession.

Benefits of Trading Cryptocurrency Over Stocks

The price of a cryptocurrency can multiply very fast, and some can reach 100 times their value in the space of a year. Digital currencies also don’t post periodic financial reports, so for investors, the coins are unhindered by fundamental analysis.

Many traders in the crypto markets place funds in many new crypto coins, hoping to hit the next big cryptocurrency. Although the probability of investing in a coin with high price potential is minute, it could happen.

Other crypto investors prefer the financial asset because of its decentralization, enhanced anonymity features, and the automation associated with smart contracts.

Cons of Trading Cryptocurrency Over Stocks

The absence of regulation in the crypto market has prevented several conventional investors from placing their funds in the sector. Several investors will continue to avoid digital currencies until there are rules guiding crypto trading.

For one, institutions aren’t sure how the government will tax the capital gains made on coins in the market. There’s also a lack of regulation concerning the rampant fraud issue in the cryptocurrency sector.

The infamous Mt. Gox hack in 2014 saw 750,000 bitcoins worth $460 million at the time get stolen. Nine years later, in 2023, several investors have still not recovered their funds, and only two of the exchange’s biggest creditors are set to receive 90% of their stolen money.

Traders want to be sure that the crypto exchange they’re trading on is safe from hackers. Although there’s the option of sending the funds to a cold wallet, there’s the risk of losing the private key and the funds getting lost forever.

Institutional investors are also wary of crypto’s slow transaction speed. Crypto prices can crash as fast as they rise, and traders could experience delays when there’s a sell-off in the market.

Investing in Cryptocurrencies vs Stocks

The typical investor is much more likely to be troubled when investing in cryptocurrency than stocks. That’s because crypto comes with a lot more volatility, and the security of coins could be compromised.

If you have some experience investing in stocks, you can decide to diversify your portfolio and include cryptocurrency. However, this investment has to be done in bits since the crypto market can take a sudden downturn. During investment, it’s also best to learn more about the crypto market before a substantial part of your portfolio goes into the crypto market.

A trader with minimal to zero experience in trading crypto should never rush into crypto trading. A better course of action would be to get familiar with the investment world. You can read about stocks and investing for dummies. Also, you can get involved in the cryptocurrency world without ever having to open a cryptocurrency account.

Final Thoughts

Several investors have often wondered about the opportunities presented by investing in cryptocurrencies over stocks. There have been several price surges in the crypto market, as seen in 2017-2018 and 2020-2021. Hence, arguments about the superiority of crypto in comparison to stocks have emerged.

The value of cryptocurrency is largely based on the demand and supply of the coin in question. On the other hand, stocks have their companies evaluated by financial experts to determine their value.

There’s an existing regulatory framework for stocks. Crypto has minimal regulation, preventing several investors from getting into the space.

Although cryptocurrency comes with reduced cybersecurity levels, it offers a better chance for investors to experience quick gains. If you’re new to investing, it would be best to learn about the investment world before even opening an account on a cryptocurrency exchange.

Have you ever considered investing in crypto or stocks? What’s your experience of investing in stocks or crypto? Did it yield more returns? Which do you prefer investing in – Stocks or Crypto? Share your opinion in the comments.

About Author

  • Carie Dominoski

    Carie Dominoski has over 15 years of experience in the finance and accounting space. She utilizes her wealth of experience to provide valuable and informative content that helps people make wise financial decisions. When she's not working, she enjoys reading poetry, writing poems, and listening to music. Her passion drove her to open a publishing firm in the USA that helps budding writers navigate through the murky waters of publishing.