Crypto Investing
30 Oct 2020

Stocks vs Cryptocurrency: 5 Key Differences That You Need To Know

CoinSwitch Kuber

Stocks have been a popular investment vehicle for many years.

Fun fact: The Dutch East India Co was the first of its kind to issue its shares to the public. It was established in the year 1602, which means the idea of investing in shares of a company is about 400 years old. 

Now there is a new kid in the block to challenge the popularity of this historical giant – Cryptocurrencies. It has been just a decade since the inception of the first cryptocurrency – Bitcoin.

Earlier anybody who wanted to earn high returns turned towards the stock market. After cryptocurrencies entered the financial market, there has been a shift of trust from traditional stock markets to crypto markets.

A recent study revealed that more than 50% of youth today trust the cryptocurrency market more than the stock market. 

Stocks vs Cryptocurrency: Everything You Need To Know?

Even though cryptos are a young market;

  • How are they becoming an attractive investment?
  • What makes them different from the traditional stock market? 

We have laid out 5 significant differences to give you a better understanding.

#1. USP Of Assets Involved

Stocks are an investment medium. When you buy a stock, you are purchasing a part of the company that issues the stock. By investing in the stock of a company, you are entitled to a fraction of its profits.  

Cryptocurrencies are digital currencies. They are a medium of exchange that is secured by cryptography to conduct financial transactions.

But a cryptocurrency can also be used as a medium to store value. In short, Cryptocurrencies can pay for pizzas (an incident that really happened) as well as be used as an investment class. 

In the stock market, a shareholder is partially an owner of the company. Shareholders are liable for losses incurred in the company. If the company makes a loss, you will lose money; if it makes a profit, you will earn money. 

But holding crypto assets doesn’t come with partial ownership of the company that issues it. If you own cryptocurrency, you are not liable for anything but your own investment. 

#2. Profitability Of Asset Classes

As investments, both cryptocurrencies and stocks fall under the high risk, high return category. But investing in stocks calls for a lot of patience in terms of return on investment. You will be able to earn considerable returns only if you are invested in the stock for an extended period.

On the contrary:
Cryptocurrencies are historically known to yield tremendous returns in a short span compared to stocks.

Bitcoin, for instance, witnessed a 9,150,088% return on investment since inception. If you had invested ₹1000 in bitcoin in 2009, it would have multiplied into ₹9.15 crores by the end of 2019.

Similarly, ₹1000 invested in reliance shares would have fetched only ₹5030 by the end of 2019, which is about 503% in a similar 10-year frame. 

Hence, buying cryptocurrency with the same risk taken for stocks could be a faster alternative for high returns.

Invest In Crypto With Just Rs.100

#3. Volatility & Risk Involved

There is a general fear that crypto markets’ volatile behaviour makes it an unsafe investment avenue since it is purely based on demand and supply.

However, the stock market also poses a similar risk. Although the extent of volatility may be lesser, stocks are known to be unpredictable too.

The difference here is:

The stock market is regulated by a central body known as SEBI, whereas cryptocurrencies are decentralized.

Meaning that their value is not determined or controlled by any individual or entity. Yet, many investors have trusted it for more than a decade and have enjoyed the returns of being a pioneer in a new investment class.

#4. Ease & Fees

When you invest in the stock market, a part of your investment amount will be deducted as fees, brokerage, etc. Also, trading in stocks requires finding a registered broker, opening a Demat account, doing heavy paperwork, and paying enormous charges. Also, the processing takes a few days only, after which you can start investing. 

For example, if you invest ₹1 lakh in a mutual fund with an annual ROI of 10% without considering any fees, the amount will grow to ₹1,10,000. Considering an MF expense ratio of 1% (sort of fee that you pay), your investment will stand at ₹1,08,900.

The net returns will be 8.9%. The difference of ₹1,100 may not seem like a big deal; however, over the period of 10 years; you tend to lose ₹50,749 towards fees alone.

On the other hand, buying cryptocurrencies are effortless and requires minimal transaction fees.

Additionally, these transactions are transparent and non-reversible. All that’s needed is to choose a reliable crypto wallet and give the correct wallet address while making transactions. 

CoinSwitch Kuber is a cryptocurrency app that enables investors to trade with a minimum of ₹100 as investment and zero-fee. You can sign up with ease by doing a quick online KYC in less than 7 minutes, given that your details are correct.

#5. There are IPO’s & ICO’s

The stock market allows private companies operating for a long time to go public by allowing IPO’s [Initial Public Offering].

Such companies distribute their shareholdings to the public through investment banks. Early investors have the advantage of a rise in value. They are entitled to the dividends paid out by the company.

Companies that wish to develop projects around decentralized applications such as cryptocurrencies raise money from the public by offering ICO [Initial Coin Offering].

Contributions are made using Bitcoins, Ethereum, or fiat money. Early investors are rewarded with bounty programs, free tokens, referrals, etc. 

#6. Legalities of Trading Stocks and Cryptocurrency

Let’s look at it this way:

Stocks are operated centrally with the help of regulatory bodies like SEBI who define its functioning. But since cryptocurrencies function in a decentralised manner, there is no central governing body defining the crypto market’s functioning; hence it may look like cryptocurrencies lack legality, but in reality, it doesn’t.

We can definitely say that stocks are more established as they were introduced long back. However, both stocks and cryptocurrencies are legal.

Bottom Line

“Once a new technology rolls over you if you’re not part of the steamroller, you’re part of the road.” – Stewart Brand.

The stock market may be the historical giant, but cryptocurrencies are slowly bringing down the wall street walls itself.

With more and more people accepting it as a mainstream investment, cryptocurrencies have a great potential for growth in India.

Compared to the traditional markets, cryptocurrency trading is much easier to use, show greater promise, and add to your wealth exponentially. Most importantly, it is a new technology, as well as a new asset class.

So, be a part of it before you get steamrolled :P.

FAQs on Stocks vs Cryptocurrency Trading Options

1. Are Cryptocurrencies better than Stocks?

Cryptocurrencies are high risk – high reward medium, whereas stocks are a medium risk – medium return instrument.

Thus, looking at the profits standpoint, cryptocurrencies are better. And from the risks standpoint stocks seem to be better.

2. What’s the difference between Cryptocurrency and stocks?

Stocks are an investment medium that allows you to own a share of a company, and thus you are entitled to a stake in the company’s profit. It can be used only as a store of value. 

Cryptocurrencies, on the other hand, are digital currencies. They can be used as a medium of exchange as well as a store of value. The returns on cryptocurrencies are derived from the cryptocurrency’s real-world application and the community. You should always have a portfolio app for crypto and stocks for a good start with reliable strating.

3. Which is the Best Cryptocurrency to buy?

Bitcoin, the first-ever cryptocurrency in the market has always been a top coin based on its market cap.  Bitcoin is built on strong fundamentals by a bunch of bright minds that work on the network to keep it secure.

It has also been termed as Digital Gold.

4. What are crypto stocks?

Cryptocurrencies are a decentralised form of digital currencies used as a store of value and thus is an investment vehicle.

There are more than 7000 cryptocurrencies in the crypto market which includes Bitcoin, Ethereum, Litecoin, Ripple etc.

5. As an investment, should I trade stock or cryptocurrencies?

Whether you should trade in stocks or cryptocurrencies shall be a very conscious decision from your end after considering various factors like your risk appetite, capital investments, understanding about the market etc.

Both the markets have their own way of functioning, and hence you should do a thorough evaluation based on the above-mentioned factors to come at a conclusion.

6. How is the cryptocurrency market different from the stock market?

The cryptocurrency markets are open 24/365 days since they operate globally and are self-regulated.

The stock markets are only open from IST 9 am to 2 pm and remain closed on declared holidays. SEBI regulates it.

[su_note] KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing. [/su_note]

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.

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CoinSwitch Kuber

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