When the COVID-19 pandemic struck in 2020, one of the most notable impacts was the sudden drop in stock prices, with some such as J. Crew and Hertz Global Holding hitting the lowest points in their history. However, many cryptocurrencies gained a lot during the same period, as people started shifting to try and protect their investments. Now, even the previous doubters about blockchain and cryptocurrencies are taking steps to adopt them.
Sure, cryptos are relatively new compared to stocks, which make them even more confusing for investors looking forward to drawing the big decision. So, let’s decipher the two. Keep reading to understand the main differences between cryptos and stocks to be able to make the right investment decision.
Cryptos Vs. Stocks: What Drives their Price on the Market?
Before we can evaluate the two to determine the better option when it comes to investment, let’s get back to the beginning. How do stocks and cryptos work?
Stocks
A stock means a fraction of ownership in a company. When you buy stocks, it implies that you are a legal owner and entitled to some profits when they are declared. This could also mean making some losses when the company does not make any profit.
The prices of stocks on the market rise and fall in response to the market forces and respective company’s performance. For example, if the company has very good management and the product development responsive to clients’ needs, the price of a selected stock is likely to move up. However, the reverse is true when cases of mismanagement and high competition, among other factors.
Cryptocurrencies
Cryptocurrenciesare forms of digital assets designed to only reside in their respective native blockchain networks. They are designed to make sending value directly without involving centralized authorities. Cryptocurrencies are now used as investment assets and you can target them with strategies such as buying and holding, and staking.
Like stocks, cryptocurrencies also respond to occurrences on the market. For example, Elon Musk, the CEO of Tesla, sent Bitcoin’s price flying through the roof by about 12.5% in June 2021 after indicating that Tesla would start accepting BTC for car purchases. The price later plunged down by 12% after he confirmed that he had changed his mind. Other activities that can result in high price volatility include new regulations, competition in the crypto market, and the discovery of new technology.
Should You Invest in Cryptos or Stocks?
Now that you know how stocks and cryptos respond to changes on the market, which one do you take? Here are the main considerations:
1. Risk and Safety:
These are perhaps the most important considerations when considering investing in stocks or cryptos. Investing in stocks is never easy because the market can easily be brought down by news of an unexpected occurrence. Even political turbulence and economic challenges can send the price crumbling, resulting in huge losses.
Like stocks, cryptocurrencies are also volatile, but they come with a higher potential for a reward. The only challenge about cryptos is that they are pretty new, having entered into the market only in 2009. To increase the chances of making an impressive return on investment, consider selecting vibrant cryptos, especially those with higher levels of acceptability. Good examples include Ethereum, Bitcoin, and Cardano.
2. Investment Horizon:
For many people, stocks are solid long-term investments. Although the risk of negative return still looms even with the leading S&P 500 stocks, you are likely to get some impressive returns over the long term. For example, Facebook’s stock (FB) was only valued at US $38 in 2012, but that value has shot up to US $310 by the close of October 2021, a magnificent jump of more than 700%. So, stocks are a good target for long-term investing.
Cryptocurrencies, on the other hand, work well when you are interested in quick returns. Because they are still new, the future can be uncertain, but the rewards can be breathtaking. Take the case of a person who bought BTC in November 2015, when the price was US $325. In just two years, in December 2017, the price of BTC shot to US $19,783, generating an unbelievable 5,987% return on investment.
This discussion has demonstrated that both stocks and cryptos come with unique advantages. Instead of sticking to the traditional assets, stocks only, cryptocurrencies offer an excellent opportunity for diversifying your portfolio. Remember that you can also make more cash with the coins through crypto staking or crypto lending. Call Hi to learn more about cryptos, select the best coins, and invest wisely.