Invest in Crypto or Stocks?
Should I Invest in Crypto or Stocks?
Stocks or crypto? What should an investor or just a person who wants to earn money choose? It is very important to understand it before you start buying something, especially for large amounts. Despite the fact that stocks and cryptos are often identified, in reality they are “black and white”. Let's consider what is better to invest in – stocks or crypto.
What Makes More Money – Crypto or Stocks?
For an inexperienced person, there are not so many differences between stocks and cryptos. Both are bought, in the hope of future growth, in order to make a profit in the long run. For example, they bought stocks for $100, and in a year they cost $115. Or, they bought Bitcoin for $9,500, and a year later it costs $10,500. However, this is where the similarity ends. Despite the fact that the investment scheme is identical in appearance, stocks have a number of serious differences.
Stocks have a certain intrinsic value. When you buy stocks, you are buying a piece of a business. This means that by owning stocks, you become a co-owner of the company and have a right to its property, assets and results of business. For example, by purchasing Coca-Cola stocks , you automatically become a co-owner of this company.
Cryptocurrency does not have such an intrinsic value. A company or business creates products, provides services, and therefore, by owning a stock, you are a co-owner of something valuable. For this reason, companies have ups and downs, but it is extremely rare for stocks to completely depreciate or lose 50% in value. By contrast, buying a cryptocurrency (including for investment purposes), you simply place a bet, since there is no value behind the cryptocurrency. It does not have and does not create added value.
There is a fairly wide list of advantages of investing in securities, in particular, in stocks. In short, stocks have the following strengths:
Opportunity to invest with small amounts.
High liquidity (the ability to withdraw money, dispose of it).
Maximum reliability, fraud protection.
Opportunity to invest with small amounts
Stocks provide an opportunity to invest starting with small amounts. As practice shows, many, unfortunately, cannot accumulate more or less real capital to start. This is one of the key problems of modern people (the inability to correctly save money), which is found everywhere. Stocks, on the other hand, give you the opportunity to start smoothly building capital.
By investing $500, then adding $1000 and moving in that direction, you can achieve good results. Unlike real estate or a business, the advantage of stocks is that you can start with a small amount.
Unlike many other types of investments, stocks have a fairly high liquidity. That is, you can withdraw funds to your bank account or card at almost any time. You will never achieve this speed with real estate, secured loans, investments in business or goods, etc. Therefore, the obvious plus of stocks is high liquidity. You can quickly return "live" money.
High reliability, fraud protection
It may seem strange to those who are just starting out or want to start investing, but stocks are more secure than bank deposits. In addition, the credit ratings of many companies they like to invest in (for example, Microsoft, IBM, Apple, Google, General Motors and hundreds of others) are very high.
The risk that your assets will be withdrawn to the accounts of third parties, or that your papers will “disappear”, and the companies will be captured by raiders tends to zero. Reliable brokers withdraw money only to personal accounts of clients. At the same time, there is a protection system for withdrawals. As for fraud on the side of companies, it occurs, but it is extremely rare.
Stocks, at the same time, are not without their downsides. Although all types of investing have their weaknesses, stocks are special. There is no way to invest funds with an acceptable return without facing risks or difficulties. Among the most obvious disadvantages of investing in stocks are the following:
Relative process complexity.
Probability of serious errors.
The need for confirmation and legalization of funds.
Relative process complexity
Any investment requires a conscious approach. If we are talking about such areas as competent investment in microloans, investment in business, or even more so real estate, you cannot do without special knowledge or a specialist. At the same time, investing in stocks requires a lot more specific steps, from opening an account with a broker and withdrawing funds to analyzing securities and rebalancing a portfolio. Creating a brokerage account with a normal broker can take 3-7 days, and in addition you will have to submit a package of documents.
Therefore, if your plans are to make a conscious profit, and not a lottery or a purchase akin to playing in a casino (when people buy anything or everything that is “heard of”), you need to understand that investing in securities is characterized by the complexity of the process itself compared to many others types of investments.
Probability of serious errors
Unlike other investment objects, it is much more likely to make a mistake in stocks by acting in good faith (that is, consciously and thoughtfully). Even good preparation in the absence of experience can play a cruel joke. In the case of stocks, you can lose both 70% and 99% of the value of your assets. Investing in stocks should be done carefully.
The need for confirmation and legalization of funds
Unlike real estate or business investments, and even more so, unlike the purchase of cryptocurrencies, money for the purchase of stocks will have to be confirmed. You can't just take $500,000 out of your pocket and buy stocks. This money must be declared or legalized. Your sources of income must be verified.
Another, not obvious minus is that your funds are declared and “highlighted”. This means that they can be arrested or seized if something happens. Do not think that you need to trade people, weapons or drugs for this. Everything in life is more banal. Divorce proceedings, and already there are questions. While, for example, Bitcoins you can keep “in the shadows”.
Cryptocurrency as an Investment Object
Cryptocurrency as an investment object appeared relatively recently. We can say that the starting point was the creation in 2008 of the Satoshi Nakamoto protocol with the principles of operation of the payment system in the form of a peer-to-peer network. In 2015, the blockchain of another major cryptocurrency, Ethereum, was launched. However, people started viewing investments in cryptocurrency seriously by the summer of 2017, when the Bitcoin rate began to rise sharply.
Next, we will look at the pros and cons of cryptocurrencies so that we can make a correct comparison with stocks. Let's start with the pros of investing in cryptocurrency.
Pros of investing in cryptocurrencies
Cryptocurrency, unlike other types of assets and investments, has a number of advantages. The properties and features of the cryptocurrency itself, in particular, determine the advantages. It should be immediately noted that the advantages listed below, when viewed from a different angle, create certain disadvantages. We will consider them later, including in the “Risks of investing in cryptocurrencies” section. As for the advantages of cryptocurrencies, the following can be distinguished:
Investments from any amount (even from $1).
No legalization or confirmation required.
Investments of any size.
Among the minuses of cryptocurrencies are the following:
Lack of regulatory authorities.
High conversion fee.
One of the most important aspects of investing is reliability. And cryptocurrency can not boast of reliability. Scams happen everywhere, but at least with stocks this is not typical. For cryptocurrencies, these are realities and everyday life.
Most cryptocurrencies cannot boast of stability. High volatility is a rather significant disadvantage. In the field of stocks, although they are characterized by ups and downs, such drops are extremely rare.
In addition, people who have never invested money in something before need to understand the importance of the issue of psychological and emotional peace. You can’t even imagine what you will experience seeing that you have invested $10K, and this money has turned (let’s say temporarily) into $8K or $6K. But for any investment, this is an absolutely real process.
8 out of 10 people cannot calmly watch the "drawdown" of the portfolio by 10% and even less. They worry and ruin their nerves. Some people may even start selling cheaper assets in a panic (which is, of course, in general, a gross mistake).
Therefore, if you have “weak nerves”, the cryptocurrency markets are clearly not for you (as well as investing in cryptocurrency). And if the fall of individual securities (stocks, ETFs), as well as their rise, can be explained rationally, the volatility of cryptocurrencies is almost inexplicable.
Lack of regulation
Cryptocurrencies are not controlled by anyone. And if in a year they say that Bitcoin is “dead”, you will simply be left with nothing. In the case of securities, such scenarios are also present, but as a rule, shareholders receive certain compensation. The lack of control is positioned by many as a plus. However, for investors who invest legally, this is a definite minus. Keep this in mind when you think about what should be in your assets – stocks or crypto. You need to understand that the issue of guarantees and reliability in investments should come first. At least for investors who expect to get their money back.
High conversion fee
Despite the simplicity and accessibility, the cryptocurrency cannot boast of low commissions. More precisely, the fees for transferring from wallet to wallet themselves are quite low, if not profitable. However, in terms of investment, there is also a liquidity side. That is, the ability to quickly withdraw your assets in “cash” (to a card, bank account). And here investors can expect an unpleasant surprise, especially when it comes to so-called fiat currencies.
What are the dangers of investing in cryptocurrency? Before we begin to consider the return on investment in both types of assets, it is necessary to mention the issues of risk. Both stocks and cryptocurrencies have risks. But in the case of digital assets, they are different.. In other words, cryptocurrency as an investment object has a number of additional risks. And you must clearly understand this before you invest, perhaps, at the stage of choosing what is better to invest in – stocks or crypto. Let's look at these risks very briefly so that you have a complete picture:
Fraud, break-ins, theft.
“Impersonality” of digital assets.
Cryptocurrency transactions often have signs of fraud. Almost all cryptocurrencies are in the gray zone. In the event of the theft of cryptocurrency from the wallet, you are unlikely to be able to even clearly fill out an application, not to mention the prospects of being held liable and returning the funds. For comparison, the broker is responsible for all your securities with his head, and if he goes bankrupt, everything will be restored to you under insurance.
“Impersonality” of digital assets
Cryptocurrency assets are “impersonal”. You can consider this as a plus, but this is a minus. Let's not consider pessimistic scenarios, but nevertheless, one of them is your death, including sudden death (hit by a car, plane crashed, etc.). If you die and do not leave access to your wallets, the chances that your relatives (children, wife/husband) will get access to your savings are close to zero.
For comparison, if you suddenly leave this world, your securities (shares, ETFs) by inheritance, through a rather complicated procedure, are guaranteed to pass into the hands of your children or spouses (or more distant relatives).
Let us also mention more “optimistic” scenarios. In the event of a banal loss of access to the wallet, it will not always be possible to restore it. Decent exchanges carry out authorization by phone, email, and even using biometrics. People who want to use cryptocurrency legally also submit documents for identity verification. At the same time, not all exchanges and services provide such opportunities. For this reason, “impersonal” assets are a big risk. They can be stolen or you simply lose access to them and end up with nothing.
What's Better: Crypto or Stocks?
Buying cryptocurrencies, unlike stocks, is not an investment in the classical sense and promises high risks.
When choosing between stocks or crypto, you choose between an investment vehicle and a “bet to win”. Conservative investors don't do that. In the case of stocks, it is possible to predict growth or decline quite likely, and investments in the broad market will certainly bring profit.
When talking about cryptocurrencies, you can just guess and dream about the rate, since it is in no way related to any economic factors. And although there is some correlation, it is extremely weak and inconsistent. In fact, this is akin to betting in a casino when you expect a win, but you can hardly predict it in any way. All investments in cryptocurrencies available today are associated with high risks, and most importantly, they do not have any guarantees for the investor.
Although stocks and cryptocurrencies look very similar, in reality there is a huge gap between them. According to the classical approach, cryptocurrency can hardly be considered as a serious investment. At least at this stage or in the very near future. Therefore, we can briefly formulate the following theses:
Stocks (and ETFs): maximum reliability and adequate returns. If you want to keep your capital and increase it, you need to choose stocks (or ETFs). This is an investment that has been proven for almost a century and, with the right approach, guarantees the growth of your assets. And it is much easier than you might think at the moment. At the same time, the return on stocks can be quite high.
Cryptocurrency: super profit and huge risk are both possible. In case you expect to "hit the jackpot" the cryptocurrency will do just fine. If you believe in the potential of cryptocurrencies, just allocate up to 3-5% to this sector and buy.