Crypto market vs. Stock market

October 11, 2021

The creators of cryptocurrency intended that it one day become a form of currency widely accepted as credit and cash. Even though both crypto exchanges and the stock market facilitate trade, they have subtle differences such as the method of trading assets, the volatility of the market, and other factors. Understanding the differences between trading stocks and trading crypto can help prevent you from making wrong investments and losing your cash.

1. Valuation

The most significant difference between stocks and crypto is in their valuation. Stocks are fronted by existing companies with shareholders who expect to make profits. Stocks, therefore, will involve physical assets as a component of their valuation. As such, you can always use math to determine stock value.

Companies do not always front cryptocurrencies. The valuation of cryptocurrency is mostly through demand and supply, hype, and functionality. Therefore, the valuation of crypto is a bit more subjective, and as such, predicting whether a currency is worth its value is not accurate.

2. Assets

Crypto and stock markets also differ in the types of assets traded, asset ownership, and how assets are issued.

A stock exchange deals in a company’s shares or stocks. Cryptocurrencies exchange trade in digital currencies. Whereas anyone can make digital currencies by creating a blockchain ledger and starting an ICO, stocks are developed by companies, cleared by government agencies, and audited before they can be traded. Stocks also adhere to a set of regulations, depending on the country.

Shares traded on the stock market represent equity in a company. Stocks exist as a fundraising mechanism for the company issuing them. Buying a company’s shares means buying into the company. In comparison, buying crypto does not guarantee you a share of the company that issued them. Crypto is much easier to own as compared to stocks.

Owner companies issue shares at will to fundraise. Crypto, on the other hand, has a capped number of tokens or coins. Therefore, it is accurate to infer that all factors considered, the value of crypto is set to increase as demand for the tokens grows.

3. Trading

Trading on the stock market and trading on crypto markets are quite different. Cryptocurrencies are highly volatile, with price fluctuations within minutes. Due to this volatility, investors may be unable to react fast enough to achieve optimal sales. To avoid the need for an investor to have an all-round the clock monitoring of the crypto market, many investors have resulted to using trading bots.

Trading bots automate trading on the crypto market and optimize long-term profitability. Crypto trading bots easily automate the analysis and interpretation of data from the markets and calculate potential risks and execute assets. Crypto trading bots are more cost-effective and save time, thus ensuring that you have profitable sales in the long term. Whereas you will acquire bots (at a price) to do market analysis, make risk predictions, and trade in your assets, different types of bots exist, and you have a variety to pick.

Trading in the stock market involves buying and selling shares. The stock market capitalizes on short-term market events to sell stocks for a profit or buy stocks at a low. However, trading in crypto is long-term since crypto may not have a lot of profitability in the short term.

4. Regulations and Costs

Stock exchanges and the stock market are highly regulated. Regulations serve to protect investors and traders by trying to even out the trading field. The regulations come with fees and costs related to traversing the stock market. The costs are relatively high. Stock market brokers charge a commission, banks charge you to complete payments, and gains are subjected to government tax.

Trading on crypto market incurs lower costs. Costs associated with blockchain are only mining fees. The crypto market will therefore have lower costs. Crypto exchange rates are free from regulation, and earnings are not subject to taxation, thus promising more profitability in the long term.

5. Safety

Due to the highly regulated nature of stocks, with almost all stocks in the market being subjected to yearly audits, there is a low chance of you trading in fraudulent stocks.

Crypto is decentralized. Therefore, it is more prone to fraud. Actual ICOs have potential exist scams, and actual crypto exchange scandals mean you can lose your portfolio fast. With crypto, it is advised that you proceed with caution.

Crypto also runs the risk of hacking. The same cannot be said of stocks because stocks are issued in your name, and you get a receipt of purchase when you buy stocks. Even though digital currency transactions can be tracked due to the unique identifier code assigned to all tokens on the ledger, hackers can transfer digital currencies if you are not careful.

6. Market Volatility

The stock market has volatility, which then translates to a more stable market in the long run. However, it means a longer wait for financial rewards. Large trade volumes make the stock market more stable and less prone to shifts. However, the stock market is affected by geopolitical events around the globe, and you may have seen plummeting stock prices as a result of the CoronaVirus Pandemic.

Since the crypto market is relatively new, it has more pronounced highs and lows. Additionally, it is susceptible to shifts due to large-scale traders (whale traders). Therefore, trading on the crypto market is more vulnerable to the trade decisions of those who are more invested.

Trading on crypto markets has an uncertain future, and traders can only hope that crypto is one day accepted as a form of legal tender. There is a lot of interest in crypto, and many people regret not investing when the prices were lower. Cryptocurrencies have certain advantages when compared to stocks in that:

  • They are insulated from geopolitical events
  • They are free from large fees and are not regulated
  • They have large potential gains to be made

CoinTurtle insulates you from the volatility by profiting on uptrends and downtrends.