Both stocks and cryptocurrency have enjoyed their fair share of ups and downs this year. The stock market has recently hit a new all-time record high, while many cryptocurrencies are also soaring to near all-time high prices.
All of this price action, despite the looming pandemic, might have investors guessing which one is the better investment between cryptocurrency vs. stocks.
Keep reading this guide to learn the difference between stocks and cryptocurrency and discover which investment is right for you.
Investing in Cryptocurrency
Cryptocurrencies have been blowing up in popularity this year, no matter what way you look at it. Some attribute it to investors looking for alternatives to the U.S dollar, some say it is the future of finance, and others will say it’s because of bitcoin halving.
Ever since bitcoin put cryptocurrencies in the spotlight with its incredible run towards $20,000 back in 2017, investors are wondering can it do it again?
With bitcoin’s price only a few hundred dollars away from $19,000 and the halving taking place earlier this year, retail traders are lining up with hopes of another possible run to all-time highs. Bitcoin isn’t the only cryptocurrency experiencing significant price advances. Others digital currencies are as well, including:
- And Litecoin
When investing in cryptocurrencies i’s important to consider the market cap of the investment rather than price alone. Looking just at a price can be deceiving – if you were to buy ripple today, the price you would pay is around $0.50, but, ripple’s market is over 24 billion, the third-highest among cryptocurrencies.
Investing in Stocks
Cryptocurrencies aren’t the only investment that has been enjoying strong price action – the S&P 500 index recently raced past $3,600 on its way to record high prices. It seems investors were skeptical of the stock market at first when the pandemic news first hit the U.S, but as time has gone on and prices continue to climb, investors’ confidence has also continued to increase, as evident from the stock market fear and greed indicator.
Investing in stocks is a general term. There are hundreds of thousands, if not millions, of companies publicly listed to invest in. You can select companies from different industries that engage in various types of business, including:
- Blue-chip stocks
- Index funds
- Foreign stocks
- Penny stocks
- Precious metals
- Dividend stocks
Each group of stocks has benefits and disadvantages of investing in that can affect the stock price. Some groups of stocks have outperformed the others of the past few years, but that doesn’t necessarily mean they will continue to. The stock market continues to grow through rotation in and out of these stocks by money managers.
Both stocks and cryptocurrency come with their fair share of risks associated with investing in them. The stock market is prone to corrections from time to time and poses several external risks from economic and political policies.
There is a common saying in the stock market that states, “it’s impossible to time the market.” So, those who hold for longer periods of time tend to do better in the long run than those looking to make a quick buck. One of the reasons long term investors fare better is due to do what Albert Einstein called the eighth wonder of the world, compound interest.
When it comes to cryptocurrencies, you also inherit several risks, these include
- Significant price swings
- Government regulation
As you can see, neither investment is completely free of risk – if they were, they wouldn’t be worth the investment. The idea is to weigh out the risks vs. the rewards and determine if the investment is right for you.
Although there are clear risks with either investment, the benefits are what keep investors coming back to buy more and drive asset prices higher.
The benefits of investing in the stock market can be traced throughout history, giving investors a better idea of what to expect in the future. Starting in 1950, the S&P 500 stock market index’s average return is over 11% annually. Looking at that data gives investors some relief knowing historically, the stock market has outpaced inflation and continues to be wealth-generating.
The ability to collect compound interest is likely the most important benefit of investing in the stock market. Compound interest is accrued interest on top of your initial investment, growing additional returns, or your money making money. This ability is possible because of companies paying dividends to shareholders.
Dividends are a share of the companies earnings paid to investors, usually on a quarterly or annual basis. The dividends add up over time and can create substantial wealth for investors, especially if paired with a fast-growing, earnings-generating company. Many individual investors have also achieved significant life-changing returns from trading the stock market. Traders have generated hundreds of millions of dollars from speculating on the financial markets.
Cryptocurrency, on the other hand, has less history to research but has also achieved incredible returns for investors. Not only that, some of the most prominent leaders in tech and finance are outspoken supporters of digital currencies, the most notable of them being Bitcoin.
Digital currencies are an emerging financial technology that has extraordinary potential to become more adopted and experience unprecedented growth. Bitcoin is extremely volatile and can change price levels very quickly. But, in the past, if you had invested at the right time, you would have made a decent return with bitcoin surging to near all-time highs.
Which Investment Is Right for You: Cryptocurrency vs. Stocks
Deciding which investment to choose between cryptocurrency vs. stocks comes down to which one you think has more potential to grow and continue to attract investors in the coming years. The difference between stocks and cryptocurrency can be looked at as the stock market has historically produced gains for investors, whereas some are viewing cryptocurrency as the future of finance.
Which is the smart investment? It depends on the level of risk you are willing and able to take on. Cryptocurrencies are looked at as riskier investments, but they have also shown the ability to achieve explosive price surges.
If you would like to learn more about stocks and cryptocurrency, check out the rest of our website!