Shares Vs Crypto: What Are The Differences For Investors
July 21, 2022 (Investorideas.com Newswire) Intelligent investors always abide by the famous saying, "don't put all your eggs in one basket". And so, they try to diversify their portfolio by investing their money in different asset classes like shares, bonds, commodities, real estate, and many more.
Recently, there is a new asset class that has been getting a lot of attention from investors: cryptocurrency. It has been around for only a few years, but it has quickly gained serious popularity, with the total value of these currencies swelling to about $2 trillion!
So, what is cryptocurrency? And how is it different from shares?
Let's find out!
What Is Crypto?
Cryptocurrency is a digital or virtual currency that uses cryptography for security.
A feature that makes crypto both exciting and dangerous is decentralization. This means that there is no central authority like a bank or government that controls it.
Moreover, cryptos can be used as a store of value and can be traded on a crypto exchange like the Independent Reserve, making them a suitable investment vehicle.
What Are Shares?
On the other hand, shares refer to a small part of ownership that you have in a company. When you buy shares of a company, you become a shareholder.
Owning shares entitles you to certain privileges. For example, you may be given the right to vote on important company decisions or receive dividends.
Shares vs Crypto: The Key Differences
Now that we know the basics of shares and crypto, let's see how they differ from each other.
1. Owning Each Means Different Things
When you buy shares, you own a part of the company represented by those shares. And how well the company is doing determines the value of your shares. Being a part-owner of the company, you also get voting rights in an annual general meeting (this depends on the % of shares you hold and the type of shares you've bought).
On the other hand, when you buy cryptocurrency, you don't own a part of the company. Instead, you own the digital coin or token itself. The value of your crypto investment will depend on how popular that particular currency is.
2. Crypto Is Very Volatile
The cryptocurrency market is highly volatile, which means that the prices of these digital assets can go up and down very quickly. For example, Bitcoin, the most popular cryptocurrency, witnessed a price increase of over 1000% in 2017. But in 2018, it lost about 70% of its value!
This volatility makes crypto a risky investment. So, if you're thinking of investing in cryptocurrency, you should be prepared to lose all your money.
Opposingly, shares are a much more stable investment option. This is because the prices of shares depend on several metrics - like earnings, dividends, company growth prospects - and not only on the market sentiments like in crypto's case.
3. Cyber Security Risks Are Real In Crypto
Since cryptocurrencies are digital and decentralized, they are stored in digital wallets. And these wallets can be hacked. In fact, even crypto exchanges have been hacked in the past, which resulted in investors losing all their money.
This is not the case with shares. Your shareholdings are always stored securely with the company's registrar, so you don't have to worry about them getting hacked or stolen.
4. Regulation And Centralization Don't Exist In Crypto's Case
Cryptocurrency is a decentralized asset, which means that it's not regulated by any central authority like a government or financial institution. And this decentralization is one of the main reasons behind crypto's popularity.
But at the same time, this also makes crypto very risky because there's no one to protect you if things go wrong. For example, if you lose your digital wallet, there's no way to recover it.
On the other hand, shares are a regulated investment option. This is because companies have to comply with certain regulations set by the government and financial institutions. Examples include the Securities and Exchange Commission (SEC) in the US and ASIC in Australia.
So, if you invest in shares, you have some level of protection.
5. You Can Trade Crypto At Any Time You Want
Since crypto is not regulated, there are no restrictions on when you can trade it. You can buy and sell cryptocurrency 24/hours a day, 365 days a year.
Buying shares is a different story. The share market has timings just like any other market. For example, in Australia, the share market timings are from 10:00 am to 4:00 pm Monday through Friday. So, if you want to buy or sell shares, you can only do so during those hours.
6. Each Has Its Own Dedicated Exchange
Cryptocurrency is traded on a digital exchange. And there are many different cryptocurrency exchanges available, like the Independent Reserve.
Shares, on the other hand, are traded on stock exchanges. For example, in Australia, you have the ASX (Australian Securities Exchange), and in the US you have the NYSE (New York Stock Exchange).
7. Shares Are More Liquid Than Crypto
Majority investors consider shares to be more liquid than crypto. This means that it's easier and faster to convert shares into cash than cryptocurrency.
This might be because there is a higher demand for shares, and also because there are many different ways to buy and sell shares. For example, you can trade shares through a broker, or even directly on the stock exchange.
When it comes to crypto, their liquidity varies from coin to coin. Converting some cryptocurrencies into cash can be a very slow and complicated process, while other major cryptocurrencies like Bitcoin and Ethereum are very liquid.
Shares and crypto are both excellent investment vehicles.
But before you start investing in either, keep in mind that they both come with their own risks and rewards.
If you're looking for a more stable investment, shares might be the better option for you. But if you're willing to take on more risk for the chance of higher returns, then crypto could be a good choice.
Whatever you decide, always remember to do your own research and never invest more than you can afford to lose.
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