What’s the Difference Between Cryptocurrencies and Stocks?

Part of planning for your future is finding a way to earn passive income. For many people, this means putting their money on investments that will grow in value over time. If you’re a retail investor who’s currently looking for a new asset to invest in, stocks and cryptocurrencies are likely on your list of options. Owning stocks and cryptocurrencies can certainly help you build a stable and more diverse portfolio, but it should be noted that these two assets can be quite different from each other. Here are some of the key considerations that you should think of when choosing between these two:

Asset Category

Stocks, like cash and receivables, are considered financial assets. The middle ground between real and intangible assets, financial assets are liquid assets that have a stated and documented value. The documentation can come in the form of a piece of paper or computer file, and it can be a claim of ownership of an entity or a contract declaring one’s right to payment. In particular, stocks have no expiration date, so they can be held indefinitely or sold to others.

Cryptocurrencies, on the other hand, are often classified under intangible assets or assets that lack physical substance, though some people also insist that these are likely security, which is a financial instrument. The truth of the matter is that the technology behind cryptocurrency is still changing and far ahead of the standards that financial institutions currently use, so it exists in a gray area.

The values of intangible assets are recorded at acquisition cost or the price that the owner paid to own them. You need to use a digital wallet if you’re planning to dabble in cryptocurrencies. If you’re investing in Monero (XMR), you have to use the best Monero wallet—XMRWallet.com is a good option—to store the units you’ve acquired. The way these assets are categorized can have a big impact on your portfolio, as this will determine the level of risk you assume and the financial responsibilities you need to fulfill with every acquisition.

Ownership and Possession

Stocks are issued by specific groups, and compared to cryptocurrencies, owning this type of asset is a more stringent process. Stocks are created as a means to raise funds for a company, and they are expected to turn a profit. Before they’re made public, stock offerings must first be cleared by government agencies and undergo auditing. After that, they can be traded on investment applications, and retail investors can buy shares sold by the companies they favor. If you want to cash out, you have the option of selling your shares at a good price to another investor.

Cryptocurrencies are founded on the idea of decentralized finance, so the process of acquiring digital coins isn’t as restrictive. As long as you have capital and the digital instruments needed to trade and store digital coins, you can acquire tokens from your preferred currency and trade them as well. If you want to cash out your crypto investment, it’s likely that you have to make multiple trades to do so, especially if you’re aiming to exchange them for fiat money.

Level of Volatility and Assumed Risks

In general, stocks are a much safer investment than cryptocurrencies. This type of asset is backed by public and private institutions, and there are laws and regulatory bodies that are aimed to protect the rights of the investors in case something goes awry during the process. Also, this asset type has a significant impact on the economy. As such, it’s unlikely to see high levels of volatility on stock prices unless there are significant events that are influencing the business itself or the general economic activity.

In contrast, cryptocurrency investors have to deal with high levels of volatility and numerous risks, and this can be a bane or a boon for investors. Early adopters of crypto tokens like Bitcoin, for example, have seen their capital grow multiple times in the past decade. From just about USD 1 per unit in 2011, a single Bitcoin now costs around USD 57,000. Monero also used to be available at USD 13 in 2017, but these days, the coin’s price ranges between USD 110 to USD 500.

Those who have put their money into these currencies when they were still at rock-bottom prices and held on to their investments were able to increase their profits significantly. However, it’s worth noting that there are tens of thousands of cryptocurrencies in the market today, and it’s highly likely that some of these currencies will not thrive. As such, investors who put their money on digital currencies should be careful when choosing the coins they want to invest in.

What are your financial plans, goals, and strategies? If you want to play it safe and enjoy the protection offered by laws and establishments, then putting your money on stocks seems like a good fit. If you’re willing to take on more risks for the chance of getting better rewards, then crypto should make a good addition to your portfolio.