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The Stock Market vs. Cryptocurrency Investing

 

August 4, 2020 (Investorideas.com Newswire) 21st century investors have an array of investment opportunities, with a multitudinous offering of stocks, ETFs, mutual funds, cryptocurrencies, bonds, and more. Many investors see both the stock market and cryptocurrency market as ripe opportunities which will pump out potentially plump returns. Before shelling out cash, however, investors must understand the histories, similarities, and differences between stocks and cryptocurrencies.


The stock market is best understood as a "store", where buyers can go and purchase pieces of ownership in companies that are for sale at that store. Companies that wish to "go public" offer ownership of their companies in the form of shares to the general public. This is the basic concept of owning stocks: when one purchases 5 shares of Tesla stock, for example, they become a partial owner of Tesla.

If the company is successful, it will usually (but not always) share with its shareholders' profits, in the form of dividends. In addition, a profitable company usually has a higher stock price than peer-companies that aren't profitable (see Microsoft vs. Blackberry). Thus, how well a business does in terms of profitability is important to its stock price.

With a few taps of the finger, investors can buy and sell stocks on one of many online brokerage-firms. In terms of financial history, stock markets are very mature. Indeed, the first market offering shares in public companies in the United States, the Philadelphia Stock Exchange (now the NASDAQ), began accepting investor money in 1790. The New York Stock Exchange, which is still in operation today, traces its origins to 1792.

The cryptocurrency market, on the other hand, is incredibly young. Most experts believe the crypto market began in 2009, when Satoshi Nakamoto introduced Bitcoin. When an investor purchases a Bitcoin, an Ether, or any other type of cryptocurrency, they own the full value of that cryptocurrency. In this respect, cryptocurrency trading is more akin to forex trading than purchasing stocks. There are many cryptocurrency exchanges available online that are both similar to and as easy to use as stock brokerages.

Both stocks and cryptocurrencies share basic economic similarities: their prices are sensitive to supply and demand. For whatever reason, if large numbers of people are willing to purchase certain cryptocurrencies or stocks, these respective prices will increase and vice-versa. If investors believe that a certain company will perform well financially in the future due to a superior product or sound leadership, they'll pay a premium for the stock price as they are anticipating either higher returns in dividends or a more valuable stock price down the road. Likewise, if investors believe that a certain cryptocurrency will serve an important function in the future that will increase the value of that cryptocurrency, they will not hesitate to add this cryptocurrency to their portfolio. Finally, investors use arbitrage strategies-buying low and selling high-when trading both stocks and cryptocurrencies.

A major difference is that unlike stocks, investors can use cryptocurrencies to buy goods and services; this number of crypto-accepting companies continues to grow. Although stocks, given their historic tenure, will always remain important, the rise of cryptocurrency in circulation, blockchain, and cryptocurrency-trading websites will continue to popularize both cryptocurrency investing and the cryptocurrency market.

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