Cryptocurrency Vs Stock Market: Understanding the Difference

The crypto market and stock market are often compared to one another. It’s no surprise as digital assets such as cryptocurrencies are quickly becoming alternative options for those who want to diversify their assets.

Both cryptocurrencies and the stock market are excellent options to diversify your investment portfolio. However, it’s important to know the differences between the two and how they behave. One important distinction is that when you invest in stocks, you technically own a portion the company. On the other hand, when you invest in crypto, you own the project and utilities.

In this article, we will dive deep into the different aspects of each type of investment so you can be better equipped to make a more informed investment decision.

What is cryptocurrency?

Cryptocurrencies are simply a form of digital currency. The use of cryptography is what allows it to be secure, and this makes it nearly impossible to counterfeit (or, in crypto terms, “double-spend”). 

To make it simple, cryptocurrency is like fiat (regular) money, but it only exists in digital form. With fiat money, you can buy products and services. 

Cryptocurrency can also be used to buy products and services. Because it’s digital, you can transfer cryptocurrencies across borders, potentially in an instant.  

The most important aspect of cryptocurrencies is that they are not issued by any bank nor any government in the world. As such, its total supply and issuance rate is programmed by a computer code — rather than through central bank policies or government intervention.

They are also completely transparent. You can see directly how it works, see all the transactions that have occurred, and you will be able to verify to yourself that the network is working as intended.

Related: What is Cryptocurrency?

What is the stock market?

The stock market is the term used to describe a place where shares in companies are bought and sold. It is also known as the equity market. Stocks are a type of security purchased to gain ownership in a company. 

When people invest in a company, they buy stock – then be called shareholders. The stock represents a portion of the company’s value, and when the company makes money, shareholders receive some profits as a reward for having invested—this is called a dividend. 

The stock market is divided into primary markets and secondary markets.

Primary markets are where new companies go to raise money through initial public offerings (IPOs). Shares in these companies are sold directly by them, but they may use banks or investment firms as underwriters that help with raising capital, printing shares and distributing them to investors.

These underwriters make sure that the IPO meets all the relevant regulatory requirements and complete all necessary paperwork for it.

Secondary markets are where publicly traded companies trade stocks through exchanges. Stock exchanges were created to facilitate the trading of securities between buyers and sellers.

They provide a place for buyers to find sellers, and vice versa. Some exchanges also provide an electronic communications network to display real-time stock prices to the public.

In a nutshell, the stock market is a market for stock. Investors own stocks — and, they hope to make money from both the price of the stock going up and from dividends.

Does cryptocurrency work like stocks?

Both cryptocurrency and stocks have values that can increase, but the method of investing is completely different.

When you invest in stocks, you own a certain part of the company. You can buy shares during market opening hours.

If the stock in which you have invested performs well, you will also receive a dividend. Investors who receive it can keep the dividend or reinvest it in order to acquire more shares.

The stock market has strict rules and regulations: all associated penalties for non-compliance. 

The crypto market does not deal with international laws and regulations and operates 24/7, 365 days a year. There is no ownership when you are active in the crypto market and you do not get paid dividends; instead you can lend or stake your tokens to earn passive income.

Read more: Crypto Investment Guide for Latecomers.

Crypto vs stock

Both the stock market and cryptocurrency have been growing in popularity in recent years, but they are very different investment vehicles. The table below compares a few of their most important characteristics:

Category	Stocks	Cryptocurrency
Nature of the asset	Ownership in a company	Ownership of currency
Price volatility	More limited	Can be extreme
Regulation	Centralised, mostly controlled by the government	Decentralised
Fees paid by investor	Determine by the exchanges	Determine by the network and exchanges
Diversification	Portfolio with investments in different sectors of business and countries	A diversified portfolio of more than 19,000 cryptocurrencies

Crypto or stocks, which one?

Are stocks better than crypto?

It depends. Deciding which to invest in between stocks and crypto isn’t an either-or choice. 

If your risk tolerance is high, you can consider investing in both of them. Adding crypto to your stock portfolio can be a great way to add valuable diversification, and potentially lucrative returns. Just make sure to keep the following things in mind before investing money in either crypto or stocks:

Note: Keep in mind that this is not to be interpreted as financial advice. Always conduct your own research before making any investment decisions, or consult with a licensed financial advisor.

Takeaways

It’s clear that there are lots of differences between the stock market and cryptocurrencies, and they certainly shouldn’t be considered as direct alternatives to one another.

That being said, they are both valid investment opportunities that can bring a fair amount of success if used correctly.

Further reading: Explore our library of crypto investment topics on our Hub Site.