Stocks or Crypto: How to Choose Your Investment Strategy?

Benefits of Investing In Crypto 

• Growth potential: Crypto is a highly volatile, relatively new asset class. Investing in crypto can result in high gains as well as losses. It’s worth mentioning that in the 7 last years, Bitcoin has outperformed any major asset class, including gold. However, it’s uncertain how the prices will change. 

• Diversity: By adding different types of cryptocurrencies into their portfolio, investors can reduce volatility risks. Those can include NFTs, governance tokens, utility tokens, etc. 

• Flexibility: Cryptocurrency platforms operate 24/7 and don't depend on banks. You can make investments whenever you like regardless of your geographical location. 

• Independence: Cryptocurrencies aren’t controlled by central banks and governments Independence from central authority makes them a hedge against inflation. 

Drawbacks of Investing in Crypto 

• High volatility: Crypto prices can skyrocket and fall on a daily basis. Crypto is more volatile than stocks as it largely depends on market sentiments rather than underlying business performance. Crypto investments can bring both massive gains and losses.

• Complex to understand: For beginner and non-technical people it’s difficult to understand the concept of cryptocurrencies. Investing in crypto wisely can take some time to study and understand its nature. 

• Regularity uncertainty: As the crypto market lacks clear regulatory rules, there are higher risks of fraud and manipulation. It’s necessary to avoid emotional purchases and large investments out of fear of missing out.

• Technical risks: A part of crypto trading and investments happens on decentralized platforms automated by smart contracts. In the case of smart contract vulnerabilities, there may be hacks leading to loss of funds. 

Investing in Stocks: Benefits and Risks 

Benefits of Investing In Stocks 

• Established market: The practice of buying company shares has a long history. Therefore, it’s easier for investors to analyze the performance of different stocks before making a decision. 

• Linked to business results: One of the key differences between stocks and crypto is that stocks are backed by tangible business results while the values of cryptocurrencies are mainly driven by supply and demand.

• Less volatile: Generally, the prices of stocks are less volatile than the prices of cryptocurrencies. Relative stability is due to the larger trading volumes of stocks. As of March 2024, the total market capitalization of stocks is over $102 trillion, while the total market cap of cryptocurrencies is over $2 trillion.

• Clearer regulatory rules: The stock market is governed by rules and regulations. It provides legal protection for investors and is an attractive option for institutions. Today, it’s also possible to invest in shares issued by companies in the crypto industry, such as Coinbase or MicroStrategy. 

Drawbacks of Investing in Stocks 

• Lower return potential: Because the stock market is less volatile, it offers lower potential rewards. Stocks are primarily seen as a long-term investment strategy, with the S&P 500 index averaging a yearly return of around 10%. However, returns can vary, and there are high-risk, high-reward options such as startups focused on emerging technologies. 

• Risks related to a business: The price of shares depends on various factors within a company, like changes in leadership or reports of declining earnings. These factors can cause a selloff and less demand, which can make the investment's value drop.

• Higher trading fees: Generally, trading stocks involves higher costs. Investors have to pay brokerage commissions and fees for banking services. On the other hand, fees on crypto exchanges are lower.

• More affected by macroeconomic factors: Stocks, as traditional financial assets, are strongly influenced by economic conditions such as interest rates and depreciation of local currencies. 

Key Differences Between Crypto and Stocks 

How to Choose Between Crypto and Stocks for Your Investment Strategy?

• Take time to research different assets 
• Define the amount you are willing to lose 
• Avoid FOMO and make rational decisions 
• Consider diversifying your portfolio 
• Choose between short-term and long-term strategies