Stocks and crypto currencies, as forms of online investing, are a quickly growing way of making money online. But these two have their own set of risks.
investors in stocks aligned with the underlying assets and cash flows of companies are likely to obtain steady returns taking advantage of government regulation and protections to investors While this asset-backing might help keep S&P alike investments safe from cyber attacks, cryptocurrencies are different – they don’t have fundamentals.
Low Entry Barrier
It depends on your goals in investing in the stock, your time horizon, and risk – which is important for stocks (especially well-diversified portfolios), but even more so for the non-diversifiable risks in crypto.
Whether caused by nature, artifice or fiat government, barriers serve to keep newcomers out and earning profits for incumbents at the same time.
Exchange Traded Funds (ETFs) represent another approach to investing in crypto, letting investors buy and hold cryptocurrencies on their behalf at any time of day or night – but these also attract transaction costs.
Diversification Opportunities
You hold part of the stock of the company and benefit from its success but are liable to losses if the venture doesn’t pan out. They recommend diversification when people invest in stocks, because putting all their eggs in one basket means they might lose everything if a particular company goes sour or gets replaced.
Diversification, meanwhile, can be achieved through a variety of avenues. You could hold stock from companies of different sizes operating in diverse industries, both domestically and internationally, or you could buy bonds, which are generally thought to offer lower risk with lower return than stocks.
Investment in cryptocurrency offers another kind of diversification; because blockchains are programmable, cryptocurrencies could become programmable money, or used for DeFi use cases (although, like many things here, that’s still in its infancy and could change over time). Crypto investing is also generally more volatile than stocks.
Taxes
For instance, investors may find cryptocurrencies much more cost-free than buying stocks: transactions on cryptocurrency markets are free of taxes and other forms of regulation, and subject to far fewer rules. Instead, their valuation is governed by fundamental economic forces, as well as other, more mystical influences.
Stock and crypto markets might look quite similar when browsed on intuitive user interfaces, but they differ in important ways. You can still buy cheap cryptocurrency If you start buying and selling stocks, you have to account for various fees, from broker commissions to bank charges to capital gains tax on a healthy return. When buying and selling cypto, you pay nothing.
The real costs one needs to cover are those assigned by the blockchain, which are relatively modest, and flat per trade. The same applies to cryptocurrency futures trading, which has only just started to become available on some markets; futures contracts for cryptocurrencies are bets on crypto prices for future dates, which lowers the entry barriers for the asset class while keeping the costs manageable.
Returns
A cryptocurrency is a digital currency that acts like digital cash, enabling peer-to-peer transactions across the world without any need for centralised banks or governments to back it up. Cryptocurrencies empower people to spend money in a way that’s never been possible before.
Value, like everything else, depends on supply and demand. People buy crypto for the usual reasons people buy anything. They do so quietly hoping that it will grow in value and fetch them a return.
Yet, before throwing good money into the new wave of cryptocurrencies, make sure you do your homework, especially as many of them are linked to specific technologies and can be more volatile than shares – some are, for example, ‘backed’ by a real asset such as gold, while others do not have that bailout. You might also want to familiarise yourself with blockchain technology, which underpins the vast majority of what is being referred to as cryptocurrencies – check out Simplilearn’s excellent Cryptocurrency Explained video to start understanding more.