Investing in the stock market has become a popular form of making money in today’s world. For some, it is a profession and for others, it is an extra means of generating wealth. With the emergence of cryptocurrency, people have now found a new space to put their hard-earned money in to.
Although it is a form of investment, the primary difference between the two is the area of investment.
In the stock market, you actually invest in the company whereas, in the cryptocurrency market, you invest in the technology (protocol) without really getting to own any part of the company.
The prices of both markets are determined by demand and the idea behind them while being valued in fiat currencies.
Pros and Cons of the Stock Market
The idea of investing in stock markets has existed for a very long time. It is also a platform where one is encouraged to invest for the purposes of exploring future gains. Even with the introduction of cryptocurrency, people still put their trust in stocks. This is mainly because of the following two reasons:
- A stock’s worth can be estimated by tracing its history, or GDP growth of a country to value a currency.
- Stocks have strict insider trading laws and processes that protect outsiders.
The introduction of cryptocurrency has highlighted a few limitations of the stock markets:
- It takes a very long time to earn a significant profit. In other words, it is a slow process.
- Investors cannot buy or sell outside the opening hours of their relevant stock exchanges. Transactions are generally made in the country where they are incorporated.
- The requirement of formal accreditations and thorough KYC procedures where; it is required to prove the origins of your funds, and that you have sufficient income or assets.
- The ability to trade is restricted to qualified buyers with high trading fees where investors lose a considerable amount of investment funds to stock market charges in terms of brokerage, taxes or trading charges.
Pros of cryptocurrency market
So how does cryptocurrency solve these issues? What advantages do they have over stock markets?
- They can be used as payment for goods and services.
- Since more merchants are accepting cryptocurrencies, the demand is increasing while supply remains limited.
- Potential profits are high due to the dramatic fluctuations of the cryptocurrencies.
- Cryptocurrency exchanges operate 24/7 globally allowing access at any time for low transaction fees.
- The blockchain is a particularly secure technology.
- A large number of coin/token projects in ICOs.
- In STOs most of your money is in a safe asset class, with few of them having an excellent return on investment.
Cons of cryptocurrency market
Although we encourage investment in cryptocurrencies, there are a few limitations to this market.
- Cryptocurrencies are high-risk due to market fluctuation, wallet security and unregulated digital assets due to the absence of a regulatory body.
- Unlike stocks, they don’t have assets and due to its recency, it is very difficult to evaluate and calculate the risk.
- The crypto-market may dominate in instances of unmitigated insider trading activity which will cause outsider dissatisfaction.
- Cryptocurrency exchanges do not provide either cash or asset insurance except for a few exchanges such as Coinbase and Gemini (which only provide insurance on cash deposits).
The Future of Stock Market and Cryptocurrency Investment
Wall Street, the world’s largest stock exchange, has gone from one that was really growing and optimistic to a state of descent. The main reason being the emergence of cryptocurrencies and how it closely resembles the behavior of the traditional financial market.
The centralization and authority of the US Dollar are being challenged and disrupted by a change in the dynamics of international trade with the rise in cryptocurrencies. Financial transactions are being decentralized at a rapid rate with the help of cryptocurrencies, thus making it more robust where its acceptance is set to overshadow fiat currencies in the near future.
As a long-term investment option, cryptocurrency and blockchain technology has a stronghold in the emerging market trends.
Currently, the stock market is not poised to deliver even half of its historical value. And if history teaches us anything, it is that the key to success in investment is a willingness to go against the grain.
What are your thoughts on investment? Have you made up your mind about where to invest? Share your views in the comments section below.