There are many types of investment, from foreign currencies to fine wines and rare whiskies. Two that are often pitted against one another in the modern investment era are cryptocurrencies and stocks.
They do share some similarities, with both having an abundance of trading tools available, and both being available through exchanges. They are also both described as having volatility, although cryptocurrency can make stock market investment seem positive sedate and mundane.
Which is the right option to add to your investment portfolio depends on your level of risk aversion, the reason you’re investing, and your comfort with software and technology. But, the two are not mutually exclusive – you can develop a diverse and potentially profitable portfolio containing both of these asset classes.
Cryptocurrency
Cryptocurrencies are digital currencies that are maintained and verified on decentralized digital ledgers. Bitcoin is the best known and the largest, by market capitalization, but thousands of cryptocurrencies exist. You can also view the newest crypto additions on Binance, enabling you to see staking rewards, the main features of the coins, and other factors to consider before investing.
Binance is one of the largest cryptocurrency exchanges and a listing on the site can lead to a substantial price bump, on acceptance. It also helps increase the liquidity of the asset and, according to cryptocurrency writer Carlos de Lanuza, identifying potential listings before the rest of the crypto crowd can generate significant returns.
Crypto Benefits
- Diversification – Investors are advised to diversify their portfolio. As well as buying stocks in different types of companies, operating in different industries, this means diversifying the investment classes held. Cryptocurrency, in particular, is considered a high-risk investment with potentially very high returns. It can also be a good hedge against inflation as the market typically looks to move its money away from cash investments at these times.
- Massive Potential – One of cryptocurrency’s biggest pitfalls, its extreme volatility, is also one of its greater potential benefits. It is common for Bitcoin and especially other cryptocurrencies to experience 10% or more movement in a single day. And, even though Bitcoin had a relatively subdued year, by its standards, in 2024, it also saw its price increase 150%. Other cryptocurrencies saw even bigger gains, and it is difficult to find other forms of investment with this kind of potential.
- Thousands Of Potential Investments – Bitcoin launched in 2009. Litecoin was created as a fork of Bitcoin and launched in 2011. Namecoin launched in the same year. The floodgates seemingly opened in 2013, when various coins, including Dogecoin, launched. According to Coinmarketcap, there are now more than 10,000 cryptocurrencies. While many of these are inactive or have been mothballed, there are still thousands of active cryptocurrencies with enough liquidity to make them viable investment opportunities.
- Growing Interest – More and more people are buying into cryptocurrency, whether as investors or daily users. While most new users will initially buy Bitcoin, they will generally move to lesser-known coins. As more money enters the market, the price of existing coins will naturally increase and so too will liquidity and opportunity.
Crypto Pitfalls
- Highly Volatile – Cryptocurrency is volatile, and investing in the market is not for the faint-hearted and not for the risk-averse. As well as having the potential to gain 10% in a day, the major cryptos have the potential to lose that, and if you get caught out, you could potentially lose much more than 10% within a few hours.
- No Underlying Value – One of the main criticisms levelled at Bitcoin is that it is not associated with any tangible asset and holds no underlying value. If people were to stop trading Bitcoin, it would lose its value overnight. However, some cryptocurrencies do have utility. Ether is used to pay gas fees for the use of the Ethereum network and by developers to establish decentralized apps and smart contracts.
- High Risk Of Scams – Unfortunately, the cryptocurrency market has seen a lot of scams. From exchanges like Mt.Gox to rug pulls and pump-and-dump schemes, these scams do still exist. Investors must do extensive research before investing and before using crypto exchanges or other services.
- Regulatory Uncertainty – One of the reasons for the proliferation of scams is that cryptocurrency is not regulated like foreign exchange or stock markets. Governments and financial agencies are introducing or expanding regulations, and these will offer enhanced investor protection but progress has been slow.
Stocks
The Amsterdam Stock Exchange launched in 1602 while the first regulated stock exchange, the London Stock Exchange, launched in 1773, soon followed by the New York Stock Exchange in 1792.
There are now 21 stock exchanges with a market capitalization of more than $1 trillion. Globally, there are nearly 60,000 listed companies, which means that stocks have a long history and a lot of potential investment opportunities.
Stock Benefits
- Extensive History – The New York Stock Exchange is the largest exchange by market capitalization and it was formed in 1792. And most of the major stock exchanges have hundreds of years of trading history behind them. Not only has this seen regulations and fair-trading policies put in place, but it also means that processes are well-established and reliable.
- Underlying Value – When buying shares, the investor receives a small share of the company they invest in. While it is possible for companies to go bankrupt, this is rare, especially with well-established companies. The company is treated as an asset, and this means that shares have intrinsic value that underpins stock prices. Even if liquidity completely vanishes from a stock, shares still retain their value.
- Easily Accessible Asset – There are brokers and exchanges that are available and accessible to investors of all sizes and types. Even some bank accounts and a growing number of mobile apps exist that enable the trading of stocks. This accessibility makes it easy to trade, although there are some account and trade limitations that can limit the available accounts.
- Regulatory Frameworks – Stock markets, brokers, exchanges, and even investment advisors are regulated in most countries, although over-the-counter stocks are not as closely regulated. These regulations aim to protect investors, as much as possible, thereby minimizing the risk of scams and theft.
Stock Pitfalls
- Somewhat Volatile – Stock markets generally return around 10% over the long term, which is minimal compared to cryptocurrency. However, in the short term, stocks do offer volatility. There is certainly enough volatility to make day trading viable and offer some reasonable returns on investment.
- Less Likely To Make Massive Gains – While there is some volatility in the market, the stock market is positively pedestrian compared to cryptocurrency. This does offer some protection against huge price swings, but it also means there is less opportunity for the 10x or 100x profits that crypto traders see.
Similarities
Although the two are often pitted against one another, there are similarities between cryptocurrencies and stocks.
- Ease Of Buying And Selling – Both markets have exchanges that can be used to trade assets directly. There are also mobile apps, brokers, and decentralized or over-the-counter trade opportunities.
- Scams – Scams are more prevalent in cryptocurrency due to the lack of regulations and protections, but they do also exist in traditional stock markets. Investors should always do extensive research into the services they use as well as the assets they invest in.
- Technical And Fundamental Analysis – Whitepapers and technical trading tools are available for both assets and are essential tools for conducting research and for timing in and out of trades.
- Volatility – Cryptocurrency has the edge when it comes to volatility, but stock markets have daily volatility, too. While volatility does carry risk, it is also the vehicle for potential profits.
Differences
Despite their similarities, cryptocurrencies and stocks also have some significant differences that may make one type of investment more appealing than the other.
- Volatility – While both assets do show volatility, there is no escaping the fact that cryptocurrency is a highly volatile asset. It is common to see price swings of 5% to 10% in a single day, whereas this is somewhat rare in stocks.
- Risk – The volatility of cryptocurrency means that it does carry risks. The prevalence of scams, although they are becoming less common, also carries inherent risk. Because stock markets are regulated, and because the volatility of the market is lower, there is less risk with stock investment.
- Liquidity – Bitcoin and some of the major altcoins have substantial liquidity, with lots of deals completely daily. However, beyond the top couple of hundred cryptos, liquidity can be a lot lower. Stocks tend to edge the competition when it comes to liquidity rates.
- Regulation – Stock markets have existed for centuries, and so too have stock market regulations. In contrast, cryptocurrency is still in its infancy, and very few governments have really caught up with the emergence of this new technology. The regulations have yet to catch up with the crypto market.
- Purpose – Stocks are designed and were established for investment purposes. Most cryptocurrencies were established for other purposes, including being used as a means of transferring value from one user to another or for the use of blockchain networks.
