Crypto vs. Stock Investing: A Head-to-Head Comparison

crypto vs stock investing

After nearly a decade of slow build-up, cryptocurrencies like bitcoin and Ethereum are now becoming a part of mainstream financial markets. Investors have pumped billions of dollars into cryptocurrency markets since 2019.

Read on to learn about the essential elements of investing in stocks and crypto and their respective strengths, weaknesses, and long-term prospects — and how we combine both here at Bitcoin Market Journal.

Comparing Investment Potential in the Crypto and Stock Markets

smiling man holding a piggy bank

While investors in cryptocurrencies and stocks share a common goal (wealth creation), there are significant differences between the two types of assets. These differences will shape what you can expect in those markets, so you should be able to do enough research and soul-searching to determine which approach is best for you.

We can identify the following major differences between crypto and traditional investing:

Potential Returns

Despite some form of crash every decade, the global stock markets have always shown a steady upward trend. Long-term returns are around 10% on average, as measured by high-performing indices like the S&P 500 over nearly 100 years.

This is one area where crypto holds a decisive edge thanks to the extreme volatility. Individual cryptos like Ethereum and bitcoin can provide remarkably high returns after 5-6 years if you buy them low and sell them during a price surge.

The table below offers an illuminating comparison between popular cryptos, stocks, indices, and our own blockchain portfolio across a short, medium, and long-term perspective starting in 2018:

As you can see, our own Blockchain Believer Portfolio is outperforming some of the biggest companies on the stock market. Our approach blends traditional stock investment with a small percentage of crypto exposure (about 5%-10%) of our total portfolio.

Access, Ownership, and Privacy

You need a verified brokerage account (with a Social Security number, contact address, and more) to buy stocks. Stock ownership gives you a share in the company with access to future benefits like dividends and earnings.

You can own and trade cryptocurrencies with relative privacy and anonymity, depending on the exchange you use to buy your tokens. However, since a crypto token has no intrinsic value, owning one rarely gives you any additional benefits.

Available Liquidity for Markets and Asset Owners

When you have larger markets with more participants, you have better odds of finding a buyer for your asset. This is one reason why stocks are generally considered more liquid than cryptocurrencies.

However, this often depends on a company's current performance and its popularity among investors. The same is also true, albeit to a greater extent, in the cryptocurrency markets. You are likelier to find buyers for a popular crypto like bitcoin than a smaller, less-known token.

Volatility

While both markets are prone to bouts of volatility and major crashes, they are far more frequent in cryptocurrency markets. On average, minor corrections of up to 10% happen every two years in stock markets, with a major crash (30%) happening once every 12 years.

In contrast, there have been at least three significant crashes in the crypto markets in the last decade alone, with the latest one wiping nearly 60% to 70% of the total market cap of major coins.

Crypto is several magnitudes more volatile than stocks. This could be due to the age and maturity of crypto markets or growth associated with a new technology.

Risk Exposure

The simple realityis that stocks offer a much safer investment opportunity than crypto. The market is heavily regulated, companies have to follow disclosure rules, and investors have some protection against scams.

No such safety nets exist in crypto since everything has been left unregulated. But that could change significantly in the next 2-3 years as regulators like the SEC take an aggressive stance.

Understanding the Pros and Cons of Cryptocurrency Investing

smiling man thinking about his crypto investments

Cryptocurrency investing is the process of buying, holding, and trading one or more of several types of digital assets, falling under the definition of “crypto.” Bitcoin (BTC) and Ethereum (ETH) are the world's two largest and most widely-known cryptocurrencies. Bitcoin alone accounts for around $571 billion in value, followed by Ethereum at $224.4 billion.

Outside of these two options are several different types of coins, including so-called “altcoins” (Dogecoin, Solana, Cardano) and stablecoins pegged to the value of the US dollar (Tether, USD Coin). The market also has other advanced investing opportunities in the form of Decentralized Finance (DeFi) apps, staking, yield farming, NFTs, and more.

To learn more about the basics of building a diversified blockchain portfolio, check out our in-depth guide. In fact, there are around 22,900 cryptocurrencies that have been created as of 2023, according to CoinMarketCap. In Q3 2023, the global cryptocurrency market capitalization was around $1.18 trillion.

The Mechanics of Investing in Crypto: Wallets and Exchanges

To invest in crypto, you’re most likely going to work through an exchange. Cryptocurrency exchanges are online platforms where you can buy and sell various cryptocurrencies. Centralized exchanges like Coinbase and Binance are beginner-friendly options since they accept fiat payment methods like credit cards or bank transfers.

To store cryptocurrencies, you need a crypto wallet. The wallet is the location on the crypto network where your currency is kept and from which you exchange coins or tokens.

Many wallet options are available, ranging from software wallets (easy to use but less secure) to hardware wallets (less convenient but more secure).

What Are the Pros of Cryptocurrency Investing?

The crypto market wouldn’t have exploded the way it has if there wasn’t something people found valuable. That value, however, comes from the fact that crypto offers different opportunities and benefits than traditional investing.

These positive factors most often drive crypto investment:

Non-Zero Change for Rapid Growth and Significant Returns

For its first-ever transaction in 2009, the price of 1 BTC was pegged at $0.0009. Fast-forward to November 2021, and the price of 1 BTC exceeded an unbelievable $68,000. For perspective, a $1,000 investment in bitcoin in 2009 would have grown to over $75 billion in just 12 years.

A timely investment in tokens like bitcoin or Ethereum has historically yielded quadruple-digit ROI percentages in a matter of years. Unsurprisingly, this is one of the main reasons so many investors are keen to participate in cryptocurrency investing.

Potential Hedge Against Inflation

Bitcoin is often called “digital gold” due to its many similarities with the precious metal. Like gold, it has a limited supply, is highly liquid, portable, and acts as a relatively reliable store of value in the long term.

Despite its volatility, investors often classify bitcoin as a better long-term growth prospect than gold. As a result, many investors park their funds in bitcoin and other similar currencies as a hedge against rising inflation.

The Capitalization on Disruptive Technology

Many of the “overnight success” investors in crypto knew that they were getting into an innovative, even disruptive technology. Blockchain can revolutionize industries from banking to finance, healthcare, logistics, and more. Early adopters are more likely to capitalize on the disruption. Many investors are banking on the long-term growth potential of the technology.

No Time Restrictions on Trading

The crypto ecosystem is a highly volatile market that hums with trading activity 24/7, 365 days a year. Many investors look for lucrative short-term trades. With frequent price volatility, there are plenty of opportunities for successful “buy low and sell high” tactics.

What Are the Cons of Cryptocurrency Investing?

Like any market, however, there are some risks to investing in crypto. Some risks are similar to stock market risks, and some are unique to this specific asset class.

Some of the cons to crypto investing include:

Unpredictable and High-Scale Volatility

The crypto market runs almost entirely on investor sentiment and the forces of demand and supply. As a result, tokens have high volatility with rampant spikes and drops.

In 2022 alone, the market value collapsed by over $2 trillion, resulting in massive losses for some investors. The crash of the Terra/Luna stablecoin project wiped out over $400 billion in just one month. There are typically ups and downs, but in crypto, these hills and valleys can be steep.

Potential for Scams and Fraud

As a fairly young and growing market, crypto is notorious for having numerous, less-than-reputable blockchain projects. Rug pulls, hacks, and other attacks are unfortunately common.

Although the blockchain technology underneath everything is fundamentally secure, we find most of the flaws and security risks in the implementation phase. Due to the lack of adequate regulation, there are plenty of bad actors and incompetent operators.

A Shifting Regulatory Landscape

There is a rising tide of regulatory actions against stablecoins and other blockchain projects due to high-profile events like the collapse of the FTX exchange. In the US, the SEC has initiated lawsuits against several major centralized exchanges.

Strict new regulations have already been passed in the EU, and the US could soon follow suit. While regulations are essential for the long-term welfare of the market, there is bound to be some early turbulence in the markets due to increased regulation.

Understanding the Pros and Cons of Stock Investing

man smiling

A stock (also called a share under certain contexts and jurisdictions) represents equity in a company, with each share representing a small piece of ownership in the company. Companies usually issue stock to raise capital for various business activities. Investors buy stock to back companies they like, hoping the stock will rise in value over time (thus creating wealth). Accordingly, stocks will increase or decrease in value based on several factors, including a company's success (or reputation), the demand for their product or services, or other external economic factors.

There is a reality that we cannot be overstate - stock investing is integral to the modern economic and financial system. The US stock market is the largest in the world, with a market cap of $46.2 trillion in 2023. The global market is valued at $108.6 trillion, dwarfing the relatively young cryptocurrency markets.

The Mechanics of Traditional Investing: Exchanges and Indices

Unlike crypto, you cannot simply open an app and buy stocks. You must go through particular markets with an exchange, typically with the cooperation of a stock broker. Stock exchanges are the platforms where investors buy and sell their stocks.

This reality has changed slightly over the past few years with the development of stock purchasing apps. These days investors can easily buy and sell stocks via online brokers and trading apps.

The performance of the company often determines the popularity of a stock. Companies with strong earnings or great prospects often see the greatest price increase in their stocks. In the modern era, stocks of tech companies like Microsoft, Apple, Amazon, and Google all have a strong ‘buy’ sentiment attached to them and are in high demand.

Apart from individual stocks, investors can also look at other options like Index Funds or exchange-traded funds (ETFs). ETFs hold a wide array of stocks from high-performing indices like the S&P 500 and securities, bonds, and other commodities. They offer investors a convenient way to balance a high chance of returns with risk management through diversification.

What Are the Pros of Stock Investing?

Investing in stocks can be (but is not always) a more secure way to increase wealth–if one is willing to do their due diligence and exhibit a good sense of patience.

The following are the main advantages of investing in stocks:

The Stock Market Is Tried and Tested

Issuing and investing in stocks has existed for centuries, starting in the 1600s with the Netherlands' Early Modern/Early Colonial era. It is a time-tested way for individuals and organizations to participate in the economy and reap dividends or growth from price appreciation.

A Good Store of Intrinsic Value

Unlike crypto, ownership of stocks gives you several tangible benefits tied to real equity. You get a share in the company, with a subsequent right to a share of future earnings, dividends, and other bonuses and myriad benefits. Outside of the market value of a stock, owning a blue chip stock in a booming industry can be worth its weight in gold (in 5, 10, or 20 years).

Stocks Are a Well-Regulated Asset

Since they have been around for centuries, government authorities and financial regulators have also relatively well-regulated the stock markets. Companies operating in the space must follow strict rules, especially concerning transparency and information sharing.

What Are the Cons of Stock Investing?

While they are more reliable and predictable than cryptocurrencies, stocks do have some weaknesses:

Lower Chance of Huge Gains

Massive returns on your initial investment are less likely in stock investing when compared to the cryptocurrency markets. This is a side-effect of the stock market, where volatility is better managed–reducing risk but also reducing buyers’ ability to turn a profit on risky plays quickly.

Limited Access to Valuable Stocks

High-performing stocks from major corporations are often worth thousands of dollars, putting them out of reach of smaller investors. While ETFs and fractional stocks do offer some ways around this, they come with issues related to fees and liquidity. In contrast, all cryptos are easily available in small fractions with high liquidity.

Investor Takeaway

Stocks and cryptocurrencies are worlds apart regarding critical aspects like regulation, risk exposure, volatility, and liquidity. Given the massive differences, the question of replacing the other in your portfolio simply does not arise. Yes, crypto has the potential for life-changing returns, but it also includes significant levels of risk.

However, there isn’t an honest “answer” to this question, as it isn’t as simple as an either/or. Investors can leverage both stocks and crypto to realize wealth–so long as they are willing to do their research.

The approach we model here is one in which investors have a diversified portfolio with stocks, bonds, and a small (5%-10%) investment into stable crypto. This has proven successful thus far, and you can follow our example (with exclusive reports, updates, and insights) through our Premium membership.

Our portfolio makes money.

Since 2018, we've beaten the market with a smart mix of crypto and common stocks. Here's how.

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