What is Better Cryptocurrency vs Stocks
What is Better Cryptocurrency vs Stocks
With the recent trend of Bitcoin and Dogecoin reaching a new high price points people are considering purchasing cryptocurrency, but is cryptocurrency better than stocks though?
Before buying into cryptocurrency we need to look at the pros and cons of both cryptocurrency and stocks and assess if it aligns with your financial goals.
Table of Contents
Cryptocurrency Summary
A cryptocurrency is digital currency used to buy goods or services. The user’s information and cryptocurrency transactions are secured using blockchain technology and placed in an online general ledger.
Unlike other investments, most cryptocurrencies aren’t centralized, meaning a business or organization acts as the middleman to manage the transaction between parties.
By operating as a decentralized network, the public or peers have public access to these transactions to verify it’s legitimate while keeping parties anonymous.
The value of the cryptocurrency will vary based on the market price. When making purchases, you can trade a fractional of a cryptocurrency down to 100 millionths or more in exchange for a good or service. You can sell your cryptocurrency in the financial market too.
Pros of Cryptocurrency
1.) Potential for Growth and High Earnings
The cryptocurrency market is worth 1.57 trillion dollars (March 2021) and has grown significantly.
If we look at the most popular cryptocurrency, Bitcoin, it is worth roughly $50,000 in March 2021.
However, Bitcoin didn’t have growth in the first few years when it was available to the public in 2009.
2.) Decentralized Network
Public networks and peer-to-peer reviews verify transactions and information for users.
Unlike having a government or organization managing it, which can be open to cybersecurity attacks, depending on their cybersecurity.
Peers are paid with cryptocurrencies or fractions of one to keep transaction records up to date.
3.) Low to No Transaction Fees
When making exchanges globally, the fees will be low or none depending on the platform you’re using. Global transaction services like Visa, Mastercard, or PayPal require higher transaction fees to make exchanges globally.
4.) Security and Privacy
Cryptocurrencies protect their transaction and the information of users by utilizing blockchain technology.
Blockchain technology is considered a better form of security than ordinary secure transactions. It uses an algorithm that follows a puzzle logic with each new transaction.
If a user tries to tamper with the blockchain for accessing another’s cryptocurrency wallet, a failsafe will initiate to stop further tampering. Also, peers will review each other’s work for accuracy too.
Cons of Cryptocurrency
1.) High Volatility
Compare to other investments cryptocurrency, is highly volatile where the price will move drastically within seconds to minutes on the same day. If you’re unable to handle unpredictable price movements, then don’t invest in cryptocurrency.
2.) Lack of Information
Cryptocurrency doesn’t have much relevant public information to help investors make informed decisions whether to buy or not. It’s a new innovative investment that doesn’t have a long history of significant evidence to decide whether it’s a good investment.
3.) Technical Flaws
Cryptocurrency is highly secure, but it’s not guaranteed to protect your digital currency. Depending on the platform you used to trade or hold your cryptocurrency, it can leave you open for cyberattacks.
Review cryptocurrency platforms before making purchases or trades to prevent possibilities of cyberattacks.
4.) Not Widely Accepted
Some countries accept cryptocurrency as a form of payment, but most international countries haven’t. New regulations will make cryptocurrency an acceptable form of payment.
It can take many years, or fear the idea of unable to track transactions and reject cryptocurrency.
Stock Summary
A stock is a purchase of ownership of a company. The value or price of a stock will vary based on the market price.
Most stocks are available to buy on stock exchanges, but those that are $5.00 or under in over-the-counter (OTC) exchanges.
Pros of Stock
1.) Potential for High Returns
Stocks have the potential to grow in prices significantly depending on the company, and they can have the potential for it to decrease significantly too.
2.) Public Information
The Securities Exchange Commission (SEC) requires public companies to provide financial information available to the public.
Being informed about a company’s financial information allows investors to decide whether to invest or not in that company.
3.) Dividends
Certain stocks will pay out cash periodically, typically quarterly. Companies do this to entice investors to continue investing in their company. The more stocks you own, then the more dividends you’ll receive.
Cons of Stock
1.) High Volatility / Uncertainty
Depending on the stock, the price can move drastically, and it’s unpredictable whether it will go up or down in the future. You have the risk of losing your investment.
2.) Company Bankruptcy
There’s a risk a company may file for bankruptcy, and you may lose your investment if the company is not insured to repay shareholders.
To prevent this, you would invest in businesses that have been performing well over for many years, reputable, and financially secure. Although these factors aren’t guaranteed, they reduce the risk.
3.) Overall Market
Most stocks follow the trend of the overall market. If a recession occurs, then most stocks will fall, but some can withstand a market crash and continue maintaining their stock price.
Risks
Looking at both investments, we see there are similarities between each other and differences. Cryptocurrencies are a much riskier investment than stocks because there is a lack of information.
You can only speculate or hope the cryptocurrency will do well without any evidence other than news sources. Public companies will post financial reports for investors to make informed decisions.
Stocks potentially can make as much as cryptocurrency, but it depends on many factors to account for what company you choose to invest in.
You’ll need to research the company from their financial reports, company history, and other relevant information to decide if it’s a good investment.
Penny stocks are on the same level of risk as cryptocurrency. They both don’t offer much information to make informed investment decisions, unlike public company stocks.
Cryptocurrency is a trending investment topic that captures more attention than many penny stocks. By getting more attention, cryptocurrency demand increases and drives price changes.
Word of Caution
Before considering investing in high-risk investments such as cryptocurrency and stocks, have enough money to pay off your living expenses and plenty of savings.
It’s not worth putting your life savings into an investment you don’t know if it will do well in the future.
Even if it continues to do well, there’s a possibility it can drop in one day and be worth less than the amount you invested for a long time.
Have plenty of money saved up and invest in less risky investments, then consider investing in cryptocurrency and or stocks.
Cryptocurrency is Better if
If you’re comfortable with the possibility of losing all your investment or your original investment drops significantly. Choosing to hold cryptocurrency for long periods can work in your favor.
Popular cryptocurrencies such as Bitcoin, Ethereum, and Litecoin didn’t grow when released until a few years later.
Lesser-known cryptocurrencies don’t follow the same trend as they move up and down drastically without any sign of growth from their initial price offering (IPO) or starting price when it was available to the market.
Historically it took 5 years before Bitcoin reached roughly $15,000 in value. Then drastically dropped until early 2021, it grew exponentially, reaching a price of around $50,000.
No know would have expected cryptocurrency to grow significantly based on past predictions.
Be willing to risk you’ll have to hold your cryptocurrency for many years if you want to see significant gains. Cryptocurrency is unpredictable and highly risky, but there’s the potential for high returns.
Be smart with how you add cryptocurrency to your other investments. Don’t let cryptocurrency be your only investment in your financial portfolio.
Stocks are Better if
Although stocks are not as high risk as cryptocurrency, they’re still a risky investment depending on what company you choose to buy.
Take the time to review the financial reports on a company’s website. You may avoid making a bad investment. Consider investing in companies that are well-known and reputable.
It may take a while for profits to grow significantly, but you’re at safer odds. Penny stocks are a riskier investment but very cheap.
Unfortunately, people invest in penny stocks without understanding they have a higher risk of not having any growth or losing their investment if the company fails.
The potential for returns isn’t as high as cryptocurrency, but it varies from the type of stocks and companies.
Closing Thoughts
Buy cryptocurrency if you are willing to do your research before buying. After your research, consider if it has the potential as an innovative form of currency to last for the long-term.
Be willing to accept the risk of losing significant investment value or your entire investment.
Also, be comfortable with the value drastically changing, and you may need to wait a few years before you can see gains from your cryptocurrency investment.
