Curious about the difference between cryptocurrencies and stocks? Read this article to the end to know the differences between cryptocurrencies and stocks in detail.
Today, with exchanges in almost every country, stock exchanges provide a broad marketplace for buying and selling currencies and commodities around the world.
Created to facilitate the buying and selling of cryptocurrencies, cryptocurrency exchanges are a more recent addition to the global marketplace.
Cryptocurrency exchanges and stock exchanges have one major thing in common, namely facilitating trading. However, the way assets are traded, market volatility and a number of other factors are the differences between the two types of exchanges.
What is Cryptocurrency?
Cryptocurrency is a digital asset or digital currency, like a form of payment that is designed to work like any other currency to buy goods and services but is based on a decentralized record-keeping system called a blockchain and is secured by cryptography.
In fact, the foundation of cryptocurrencies like Bitcoin lies in a new technology called blockchain – the infrastructure on which cryptocurrencies are built. The best thing about cryptocurrencies is that they are a cross between an asset and a currency.
Unlike traditional ways of measuring value, crypto data is not stored in a central hub; in fact, there is no central authority responsible for transactions and power is distributed among the members of a particular crypto community.
What are Stocks?
Shares, also known as equity, are a form of investment that represent ownership of shares in a company and each share is worth a fraction of the ownership of the company.
If a company owns 100 shares, then each share will account for 1% ownership in the company. So, if you own at least 51 shares, you basically own the majority of the company.
Also read: Differences in Equity and Preference Stocks
Most of the time, companies sell their shares to raise money for expansion. This means they only sell part of their company. Shares can be bought or sold privately or on the stock exchange.
There are many stock exchanges around the world, including the two largest stock exchanges in the world in the United States; NASDAQ and the New York Stock Exchange. Stocks carry risk like any other investment, but they also have the potential to make money.
What is the main Difference between Cryptocurrencies and Stocks?
1. Traded assets
Jasset type: This is the main difference between a cryptocurrency exchange and a stock exchange. Stock exchanges trade shares or shares of companies, whereas cryptocurrency exchanges trade cryptocurrencies (digital currencies), such as bitcoin, Ethereum, and more.
Asset ownership: Stocks traded on the stock market represent equity in a company. When you buy shares in a company through the stock exchange, you become a part owner of the company itself. How well the company performs also determines the value of your stock.
Purchases of cryptocurrencies – be they coins or tokens – do not necessarily represent partial ownership of the company that issued them. It is a digital currency so the value is subjective. Cryptocurrencies are much easier to own than stocks.
Asset issuance: Subject to local laws and company regulations, public companies can issue shares at will to raise money. In contrast, most cryptocurrencies have a limited number of coins or tokens.
For this reason, basic economics would suggest that (all other factors taking into account) the value of viable and limited cryptocurrencies will increase as the demand for them grows.
2. Market maturity
Stocks have been trading much longer than cryptocurrency exchanges and are therefore more mature. Local laws and regulations regulate their activities and the stock exchange also receives government support.
Companies must also provide transparency to shareholders by making market activities public including quarterly financial updates and general meeting minutes.
Given their maturity, the stock exchange has a high volume and diversity of trades. The maturity of the stock market, however, has provided many opportunities for some traders to dominate the trading circle.
Also read: Differences in Blue Chip and White Chip Stocks
This can be detrimental to smaller investors because the stock market rewards larger investors with lower trading fees or commissions.
Cryptocurrency exchanges, on the other hand, are young and in continuous development. While there have been moves to increase exchange regulation to increase investor confidence, much of their current activity falls outside the realm of regulation and politics.
Given its short history, the volume and diversity of cryptocurrencies traded is also much less compared to stock exchanges.
When it comes to markets, volatility often gives rise to extreme caution. In reality, market volatility can be considered both positively and negatively.
Low volatility means a more stable market (and hence investment); however, this often also means a longer wait for financial rewards. This is often the case with stocks.
The large trading volume increases the stability of the stock market and makes it less vulnerable to the movements of ‘big fish’ traders. That said, given its ties to governments and companies around the world, stocks are often impacted by geopolitical events.
In comparison, cryptocurrency exchanges experience greater volatility. The market is new, so the ups and downs are very pronounced, which makes the cryptocurrency market vulnerable to the trading moves of ‘whale’ traders.
A whale trader is someone who owns a large amount of bitcoins. This means that the entire market can be vulnerable to trading decisions from those who invest heavily. For example with news influencer Elon Musk invested $1.5 billion in Bitcoin in January 2022, bitcoin price suddenly jumped 17% to a new record high.
However, because cryptocurrencies are separate from governments and other global institutions, they are – for the most part – isolated from political influence.
4. Market reach
Want to start trading on the stock market? Well, be prepared to wait a bit. Given the maturity of the exchange and the various rules and regulations that evolve around it, the process of starting trading can be time-consuming and energy-consuming.
You have to find yourself a broker and once you have one, you need approval to buy and sell. Furthermore, trading is restricted to business hours.
In contrast, cryptocurrencies can be traded at any time, regardless of holidays and major events. Anyone has the capacity to trade in cryptocurrencies, making them more accessible to people of all social statuses.
Getting started is a relatively easy process and cryptocurrency exchanges remain open 24 hours a day, which allows for fast trade movements.
5. Fees and regulations
This is a clear point of difference between stock exchanges and cryptocurrencies. The stock exchange has developed into a highly regulated market. There are rules to protect traders and investors; to help keep the playing field fair.
In addition to the rules there are also fees, and the costs associated with crossing exchanges are relatively high. The broker charges a fee or commission, the bank charges you to make the payment and capital gains are taxed.
Trading on cryptocurrency exchanges incurs relatively less fees. The costs associated with transacting on the blockchain are very small, consisting only of mining fees. The exchanges themselves thus incur lower fees when buying and selling cryptocurrencies, than brokers for stock exchanges.
Cryptocurrency exchanges – until recently – were still relatively free from regulation. However, there is support for greater regulation of the cryptocurrency market. Only time will reveal the nature of the rules and regulations applied to the cryptocurrency market.
That’s the difference between cryptocurrencies and stocks. I hope this article helped you! Thank you for visiting and don’t forget if you find this article useful, please share it with your friends too.