Cryptocurrency vs. Traditional Investments: A Comparison

Edited By yashovardhan sharma on Jun 20,2024
Cryptocurrency vs. Traditional Investments

Image Source: Game of Life

A good investment portfolio should mix different types of assets. Spreading your money across stocks, bonds, real estate, and commodities helps manage risk. You can even throw in some riskier investments. Back in the day, it might have been oil drilling or internet stocks in the '90s. Now, it's all about cryptocurrency. When comparing crypto and stocks, investors need to weigh their comfort with risk. Crypto can be super volatile, with price swings that can make stocks seem stable by comparison. Knowing the pros and cons of each investment and how they fit into your portfolio is critical to reaching your goals. Let us also look at cryptocurrency vs. traditional investments in this blog. 


Quick overview of stocks

When thinking about crypto vs. stocks, remember that owning stock means you own a piece of a company. The founder initially owns it, but as the company grows, it might sell shares to investors. Eventually, the company might go public to raise more money and give early investors a chance to cash out. Even after going public, a company can issue more stock. This can dilute the value of existing shares but helps the company raise funds for things like expansion, hiring, and building new facilities. Stockholders can vote on board members and corporate policies at annual meetings. While they don't usually influence day-to-day operations, a group of investors can still steer the company's direction if they band together.


Stock owners can either have preferred or common stock. Preferred shares are called that because they offer some perks. For instance, those with preferred shares get their dividends first and usually at a higher rate. If the company goes under, they get paid out before common stockholders. Conversely, preferred shareholders don't get to vote as common stockholders do. When it comes to buying, investors can choose between common or preferred shares based on their goals.


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Getting the Right Value

Investors make money when the stock's value goes up, which often happens if the company is doing well. More sales and profits usually mean a higher stock price. Even just the hope of better performance can push the price up. But, the investment loses value if the stock price drops because the company isn't doing well or due to bad economic conditions. Dividends are another way investors get value. A company might start paying dividends if they think profits can be shared, or they might cut or stop dividends if they need to reinvest in the business. Dividends, usually paid quarterly, let a company share its profits with investors. Older, more stable companies are more likely to pay dividends, while younger, fast-growing companies might reinvest profits instead of paying dividends.


Learning About Cryptocurrency

It's a pretty new way to trade stuff that's been getting a lot of buzz over the past ten years. Some folks think it's the future of money, while others worry it's too risky because it's not regulated. Cryptos don't have government support, and their value is all about what people are willing to pay. These things run on decentralized networks of computers worldwide, and they use strong encryption for security that's why they are called cryptocurrencies. To access your crypto, you need a password that's at least 16 characters long. (Some people have lost access because they forgot their passwords.)


There are tons of cryptocurrencies out there, but Bitcoin was the first and is still the most popular, making up almost two-thirds of the market in 2020. Other big names include Ethereum, Litecoin, PeerCoin, Namecoin, Cardano, and EOS. Crypto prices are all over the place, though. For instance, in 2021, Bitcoins value swung between $28,383 and over $65,000. Fans of crypto, especially Bitcoin, say it's a good hedge against inflation. Bitcoin has a cap of 21 million coins, which means there's a limited supply, unlike regular money that governments can keep printing. More and more businesses are starting to accept cryptocurrencies as payment, and platforms like Square are making it easier to do crypto transactions. In 2021, El Salvador even made Bitcoin legal tender!


Blockchain & Investment Vehicles


How Blockchain Augments the EV Industry

Image Source: Forbes

Cryptocurrency runs on blockchain technology, which is like a digital ledger that keeps track of all the transactions. It's a mix of cryptography, a network of computers, and user agreement to ensure everything is recorded accurately. Each transaction is stored in a block, and these blocks are linked together in a chain, making it super secure. The chain itself checks and validates all the transactions. Some folks think the absolute goldmine in cryptocurrency is the blockchain tech behind it. A bunch of companies are using blockchain to record regular currency transactions to boost trust and cut down on fraud and money laundering.


With Bitcoin prices hitting over $60,000 per coin, buying cryptocurrency can seem pricier than stocks. But you can buy smaller fractions of Bitcoin if you're not looking to spend that much. This is because of factors such as Bitcoin Halving. Unregulated entities also run crypto funds.


 Cryptocurrency hit a significant milestone as an investment in 2021 when the SEC allowed an exchange-traded fund (ETF) related to Bitcoin to start trading. This ETF tracks Bitcoin futures prices on the Chicago Mercantile Exchange, not Bitcoin's direct value. This move lets brokerage firms dive into the crypto scene with the green light from U.S. regulators.


Cryptocurrency vs. Stocks: What Separates Them

Cryptocurrency and stocks are both solid investment options, but they play different roles in your portfolio. Significant differences exist in how you buy and sell them and how they fit into your investment strategy. Let's break down the main points:


Crypto is Riskier With Higher Returns

Crypto and stocks share some similarities but also have significant differences. Savvy investors can use both in the same portfolio for different reasons. Stocks are known for stability and have been a reliable way to build wealth for a long time. On the flip side, crypto is riskier but offers the potential for big rewards. Using both can help balance out the risks and rewards in your investments.


Crypto is Mostly Unregulated

After the stock market crash in 1929, the U.S. set up the Securities and Exchange Commission (SEC) to protect investors. Companies have to share all info that might affect their stock value, so investors have a lot of data to make informed decisions. Cryptocurrencies, however, are mostly unregulated. Some people like this because crypto markets aren't tied to any government, but it also means you don't have much protection if things go south.


Wild Swings in Crypto

Stocks have always been known for sudden value changes. Good news can push a stock up, while bad news can drag it down. Stock markets can have bad days, but complete losses are rare. Cryptocurrencies, on the other hand, are famous for their wild swings. Take Ethereum, for example; it started 2021 at about $730, shot up to over $4,000 by May, dropped to around $1,780 in July, and climbed back to over $4,000 by late October.


Crypto Exchanges are New

Stocks get traded on official exchanges all over the world. These exchanges give stock buyers security, stability, and transparency, and they're designed to handle a ton of trades every day. They're tightly regulated (though the rules differ by country), which helps protect both buyers and sellers. Crypto exchanges are a newer thing. There are tons of them out there, with big names like Binance and Coinbase leading the pack. Some of these exchanges team up with third parties to make it easy to swap regular money, like U.S. dollars, for crypto.


Crypto Provides Greater Anonymity

To buy and hold stock, you usually need to open an account with a brokerage like Charles Schwab, TD Waterhouse, or Fidelity. The brokerage handles the trades and keeps the stock in your name. Newer companies like Robinhood have made this process more straightforward but offer fewer features. You'll also need to share some personal info, like your Social Security number and address. Using a brokerage adds a layer of security. One big plus of crypto is its anonymity. No one needs to know who you are when you buy crypto. You keep your assets in a virtual wallet or on a storage device like a USB drive. But with anonymity comes the responsibility of keeping your crypto safe. You have to remember where it is and keep track of a long password. If hackers get into your wallet, you're out of luck.


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Crypto vs. Precious Metals, Forex, and Bonds


Crypto Vs Precious Metals

Image Source: Royal Bull

When someone says cryptocurrencies are worthless because they lack intrinsic value, comparing them to precious metals is a solid counterargument. Nowadays, people mainly invest in precious metals either for jewelry or as an alternative currency, and their value is determined by market sentiment. Investing in precious metals has its risks, like portability issues, possible import taxes, and the need for high security. On the flip side, with cryptocurrencies, there's no need for physical transfers; you need hardware or digital wallets.


Forex investors buy and sell foreign currencies, and this can be riskier than crypto because your gains depend entirely on the economy of the country involved. Bonds, fixed-income securities, are in a different league than stocks and cryptocurrencies. With bonds, you loan money to a third party and get a fixed interest payment over time. They're considered less risky and offer higher current income than stocks and cryptos. However, the long-term returns aren't as high, which makes sense given the lower risk.



A balanced approach that combines elements of both might be the optimal strategy. By diversifying their portfolio to include both traditional assets and cryptocurrencies, investors can benefit from the best of both worlds, leveraging the stability of conventional investments while capitalizing on the growth potential of cryptocurrencies. As the financial landscape evolves, staying informed and adaptable will be critical. Regardless of the chosen path, thorough research and a clear understanding of the risks involved will remain essential to making sound investment decisions. The future of investing is dynamic and diverse, offering numerous avenues to grow wealth and achieve financial goals.

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