The question, “Are cryptocurrencies better investment than stocks?” have become increasingly popular over the last 2 years. In this piece, we will explore the differences between cryptocurrencies and stocks – as well as what to expect when one gets invested into them.
One major benefit of cryptocurrencies is that they are accessible to all. Getting started in stock investments means getting a stock broker, which often requires a minimum investment and trading only when the stock market is open. Crypto investing, as it differs from stocks, requires no minimum, is available 24 hours per day, and 365 days per year. Also, depending on the platform, one can very quickly deposit money and start trading. In addition, transaction fees (if one deposits with cryptocurrencies) are lower than brokerage fees too.
The main appeal to have a position in cryptocurrencies is of course, the promise of BIG returns. While Netflix stockholders have seen an increase on their investment of more than 1,000% over five years, which is extraordinary, Bitcoin investors have seen growth of more than 22,000% within the same period of time. Those numbers are simply mind-boggling, and though growth has slowed in 2018, Bitcoin investments are still likely to grow at a faster rate than compared to any company issued stock.
The economics of cryptocurrencies also appeals to investors. There is a limit on the total number of Bitcoins that can ever be mined, for example, which increases an element of scarcity that should protect mid-term growth. It is akin to investing in precious metals such as gold. In contrast, no such scarcity applies to stocks. A company can issue new stock at any time, diluting the holdings of its investors in the process.
As the ecosystem around cryptocurrencies grows, they are getting increasingly stable and secure. Before, the extreme volatility of cryptocurrency prices made them more a speculative asset than investment. However, this is quickly changing. Volatility in major cryptocurrencies such as Bitcoin, Litecoinand others, are slowly diminishing as futures contracts are introduced as instruments. These are backed by major financial institutions.
On the other hand, stock investors are well protected and guarded by regulation in ways that don’t exist yet for cryptocurrency investors. Insider trading, for example, where someone uses the advantage of some information they know about an organization by virtue of being on the inside, and uses that to gain an unfair advantage, is a crime that is taken very seriously by law enforcement in most jurisdictions.
‘Insiders’ in the cryptocurrency world can come in many forms – they could be major investors, known as ‘whales’, or large mining operators of the cryptocurrency. There are no regulations to prevent them from using their knowledge or ability to manipulate the market to gain an unfair advantage over other investors.
Likewise, if a stockbroker disappears overnight then its customers can often claim insurance. In the US, this covers them for up to $500,000 from the government. Again, this contrasts with the cryptocurrency world where exchanges have been known to vanish, taking their customers’ cryptocurrencies with them.
Holding a stock in a company gives investors ownership of part of the business, rights to vote for change and rights to dividend – backed by the company’s revenue. However (and this is a known fact in the cryptocurrency industry), investors in issued tokens – Initial coin offerings (ICOs) or mined tokens (Bitcoin, Litecoin) do not have the same rights as investors holding onto a company stock. They only have the right to transact in the tokens they own.
It should seem clear now that if an investor is seeking safety and peace of mind – invest into stocks. However, if one wants to hit a homerun, cryptocurrencies are no doubt the best investments. Regardless the asset TYPE, one should still be careful and be sure to do plenty of homework before pulling the trigger.
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