Cryptos vs. Stocks: Pros and Cons for Traders

16 Okt 2023

In recent years, we've seen a surge in different ways to invest and grow our money. Cryptocurrencies, like Bitcoin, are a big part of this. They've become a hot topic, with a total value of over $1.8 trillion. But we shouldn't forget about traditional investments like stocks. In this article, we'll compare these two options to help you decide which might be better for you.

Let's start with a quick look at what cryptocurrencies and stocks are.




Cryptocurrencies: The New Digital Money
Cryptocurrencies are a relatively new type of digital money. They began with Bitcoin in 2009, created by someone using the name Satoshi Nakamoto. Since then, there have been over 18,000 different cryptocurrencies created, and they're all worth more than $1.8 trillion in total.

Cryptocurrencies come in many forms. Some, like Bitcoin and Litecoin, act as digital coins for buying and selling. Others, like Monero, Dash, and Decred, focus on privacy. There are even meme coins like Shiba Inu and Floki Inu that started as internet jokes. Plus, there are digital governance tokens like UNI, LINK, and AAVE that play key roles in various cryptocurrency systems. These digital currencies can work in different ways, like using complex math problems for mining (proof-of-work) or relying on validators for coin creation (proof-of-stake).




Stocks: Owning a Piece of Companies
Stocks represent your ownership in publicly-listed companies. These companies go public to raise money from regular folks like you and me. You can buy and sell these shares through online brokers, such as Robinhood and Schwab.

In recent years, there has been a big increase in the number of publicly-traded companies. In the United States alone, there are over 4,000 of them. Together, these companies are worth more than $50 trillion in the US, and globally, all the stocks add up to over $93 trillion.

Now, let's look at what sets stocks and cryptocurrencies apart:

Ownership
When you own stocks, it means you own part of a company. That makes you a shareholder, and you get to share in the company's successes and failures. Cryptocurrencies, on the other hand, don't give you ownership in any company.

Profits
Stock ownership can earn you a cut of a company's profits. They might send you some of that profit through dividends or buying back your shares. With cryptocurrencies, profits come mostly from the value of the cryptocurrency going up or from rewards you get for helping run the cryptocurrency's network.

Rules
Stocks play by strict rules, especially in the US. The Securities and Exchange Commission (SEC) makes sure that publicly-traded companies follow these rules and share all the important info with their shareholders. Cryptocurrencies have a bit more freedom, often with no one really watching over them. They're global, and it's easy for them to get listed on big exchanges.

So, whether you should choose stocks or cryptocurrencies really depends on what you want to do with your money, how much risk you can handle, and how you feel about the rules. Stocks let you own a piece of a company, share in the profits, and follow strict rules. Cryptocurrencies offer a chance to make money if their value goes up and often have a bit more freedom but less oversight. Both options can be good, but you need to know what you're doing and be careful with your money.




Trading Crypto vs. Stocks: A Side-by-Side Look

Trading in both stocks and cryptocurrencies has its similarities and differences. We'll break down these two trading worlds, including fundamental, technical, and price action analysis, while also highlighting the key differences in trading regulations.

Fundamental Analysis

In both stocks and cryptocurrencies, fundamental analysis involves examining important internal data. For stocks, this means looking at factors like earnings and user growth. In the world of cryptocurrencies, it's all about metrics such as total value locked (TVL) and ecosystem growth.

Technical Analysis

Traders in both markets rely on technical analysis. This involves scrutinizing charts and using indicators like moving averages and the relative strength index (RSI).

Price Action Analysis

Price action analysis is yet another technique shared by both markets. It involves studying chart and candlestick patterns to figure out market sentiment and potential price movements.

Trading Regulations: A Different World

When it comes to trading regulations, stocks and cryptocurrencies couldn't be more different:

Stock Trading Regulations:

Securities Exchange Act (1934): It established the SEC, introducing regulations such as corporate reporting, insider trading, and exchange registrations.
Investment Advisors Act: This one governs investment advisors, including regulations for compensation.
There are other notable laws such as the Sarbanes-Oxley Act, Dodd-Frank, and the Wash Sale Rule.

Cryptocurrency Regulations:

Cryptocurrencies are relatively new, and as a result, they face limited regulatory oversight. This lack of regulation has created challenges, including scams and pump-and-dump schemes within the industry.





Pros and Cons: Cryptos vs. Stocks

--Cryptocurrencies--

Pros:

Global Accessibility: Cryptos allow for borderless trading without the constraints of international stocks.

Variety: With over 18,000 coins, there's a plethora of options for traders.
High Volatility: Cryptos can be highly volatile, offering potentially larger trading opportunities.

Cons:

Limited Regulation: Cryptos face minimal regulatory oversight, resulting in challenges like scams and pump-and-dump schemes.


--Stocks--

Pros:

Regulatory Safeguards: The stock market benefits from well-established regulations that help deter illicit activities.

Diverse Catalysts: Stocks respond to various factors like management changes and earnings reports, providing valuable insights.

Transparency: Companies make public disclosures, ensuring investors have access to comprehensive information.

Asset Variety: Stocks offer a wide array of choices, from small caps to mega-caps across various sectors, allowing for effective risk management through diversification.

Cons:

Market Manipulation: Stocks can be susceptible to market manipulation.

Economic Downturns: They are affected by economic downturns.

Liquidity Issues: Some stocks may face liquidity problems.

Why Stocks Might Have an Edge

In several aspects, stocks hold certain advantages over cryptocurrencies. Stocks benefit from a well-established regulatory framework, which acts as a safeguard against illicit activities. Moreover, the stock market generally witnesses fewer instances of scams compared to the cryptocurrency realm. Investors and traders in the stock market enjoy access to comprehensive and reliable information about companies due to public disclosures.

Stocks offer a diverse selection of assets, encompassing companies of varying sizes and spanning across diverse sectors of the economy. This variety enables traders to implement sophisticated diversification strategies to effectively manage risk within the stock market.

Final Thoughts

The decision between trading stocks and cryptocurrencies is a nuanced one, dependent on your trading objectives and preferences. Both asset classes have their unique characteristics and appeal to different investor profiles.

In conclusion, the choice between trading stocks and cryptocurrencies is influenced by individual preferences, risk tolerance, and trading goals. Both markets hold immense potential, but they also come with distinct characteristics and challenges. Achieving success in either arena necessitates a profound understanding of market dynamics, diligent risk management, and a clear alignment with your investment objectives. Make informed choices to thrive in the ever-evolving world of trading.