There are some students in the class whose results or behavior, good or bad, are always discussed. Cryptocurrencies are like that classmate these days, whom you have to include in economic discussions whether you like them or not. According to Coinmarketcap.com, the total value of these digital currencies is about $1 trillion after reaching the $3 trillion mark in 2021. And among these, Bitcoin is at the peak of popularity, whose value is around 512 million dollars. With little knowledge and a thousand hopes, the investors are now like Charlie Chaplin’s Gold Rush movie. This rapid change in cryptocurrency has led many investors to choose crypto over traditional stocks in their portfolios. Others are skeptical about which is ultimately better. First of all, there are many differences between stocks and cryptocurrencies. The most important difference is that a stock is a piece of ownership (in monetary value) of a business. When you buy a stock in a company, you are essentially sharing the value of your investment in the total value of that company, but cryptocurrency is not really like that. If you want to buy any of the cryptos that have a long-term track record, it’s important to know what you’re actually buying. It’s also important to understand how they actually compare to traditional investments like stocks.
Should you invest in cryptocurrencies or stocks?
Knowing or understanding exactly what one is investing in as an investor is the job of any savvy investor. It is very important to consider the risks and rewards of investing as well as what it takes to be successful in investing. If an investor does not have such information, he cannot calculate his profit-loss limit. In that case, such investment is better called gambling.
Discussed below are some of the things investors should know about stocks and cryptocurrencies.
Stocks and cryptocurrencies
The capital of any company is divided into many small shares and each share has an economic value. Each fraction is identified as a share. . The collective form of all the shares is called stock.
Why stock prices rise or fall: The rise or fall of stock prices is related to the economic position of the concerned institutions or the country. If the economic position is good, people’s income naturally increases. In this way, after meeting the basic needs, a person can invest the remaining money by buying stocks in the stock market. When many people invest at the same time, the demand for the shares of the companies that get the investment also increases. And as the demand increases, so does the stock price.
Why cryptocurrency prices go up and down: Since the relationship between cryptocurrency and cash is not direct, speculation driven by financial sentiment is responsible for changing the value of this currency. As market sentiment changes, so do its prices, and sometimes drastically. For a cryptocurrency investment to be successful, you must buy it from you for more than the price you bought it for. That is, you have to be more optimistic than the market is about you.
Advantages of Investing in Cryptocurrency:
Contrary to conventional currency paradox: For some investors, the reason cryptocurrency has become the focus of greatest interest is its decentralized or decentralized approach. Not controlled by a central bank or government whose real job is to print money and create inflation. Some experts call cryptocurrencies “digital gold” and believe they can protect against inflation. Traditional currencies have many ironies that crypto does not. It is very good for investment.
Skyrocketing Profit Potential: Buying cryptocurrency creates huge profit potential on your investment. Several cryptocurrencies have skyrocketed in price since they were first launched. These gains are one of the main reasons why people are drawn to cryptocurrencies, but as the price rises, so does the risk-taking environment in the market.
Growing Number of Coins: Coins were few in the early days of cryptocurrency but it has expanded day by day. Currently there are around 23 thousand crypto coins in existence. It brings many options for any investment. So investing in the right crypto wisely has the potential to do well.
Wide Interest in Digital Currencies: Interest in cryptocurrencies from investors, companies and governments seems to be growing all around. Tesla holding Bitcoin on its balance sheet and giving access to the digital currency as payment before reversing course proves that. El Salvador adopted Bitcoin as legal tender in 2021. Increasing acceptance of digital currencies can be positive for investors.
Disadvantages of Investing in Cryptocurrencies
Market Volatility: The cryptocurrency market is a very volatile market. You can understand that by looking at the graph of the crypto market from 2018-2023. Many of the crypto-friendly entrepreneurs who made it to the front page of Forbes were lost in the volatile market. However, the face of a new millionaire or billionaire has also been seen.
Cyber Security Risks: People interested in cryptocurrencies tend to prefer crypto because of its security measures but as the cyber world is inextricably linked with it, the consumer is prone to scams and another problem is irreversible transactions. Once you make a transaction to the wrong address by mistake it is almost impossible to get it back. However, it is only a matter of time before they are treated as system failures.
Benefits of investing in stocks
History of good returns: Stocks have a long track record of generating investment returns, with the S&P 500 (stock index) returning around 10% over the long term. Although stocks can be quite volatile in the short term, holding them can be profitable.
Has intrinsic value: A stock represents an ownership interest in a company and its value over time depends on the company’s success. Companies’ own assets also play a role in these cases.
Accessible: Investing in stocks is easier than ever these days as many online brokers offer zero trading fees. But that too may have been possible in many cases thanks to the crypto revolution It’s also a well-known strategy to give up small profits in order to capture customers when your competitors want to outbid you.
Strong regulation: Stock exchanges, brokers and companies are heavily regulated through various government agencies. Companies are required to provide certain information to investors through the Securities and Exchange Commission. No regulatory body is perfect but there are several safeguards in place for stocks.
Disadvantages of stock investing
Low potential for large gains: Broad stock indexes such as the S&P 500 have low potential for large gains, which is also common in cryptocurrencies. Stocks have returned around 10 percent over the long term while it is not unusual for cryptocurrencies to move 10 percent in a day.
Economic forecasting is very difficult. Every system in the world has system losses against it. All things will have some advantages and disadvantages. So this argument can be carried on forever as to which one will see more profit. Profit is very relative. If you deposit 1 lakh in the bank and get a return of 2 lakh after 5 years, whether it is a profit or not depends on many factors. If bank or different media show us it as profit. Maybe after those 5 years the standard of living that can be lived with 1 lakh taka is equal to 3 lakh 5 years ago. But this much is true, the more risk you take, the bigger the return you can expect. This is the harsh reality of economics. This much is true if you go in comparison to crypto with stocks. But if you look at the timing of the two very different markets, crypto is the frontrunner in many ways. Where to invest your money should be your personal judgment but don’t forget to do market analysis. The biggest investment in any business is your knowledge of the business.