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Here, we explore the key differences between the stock market and the crypto one to understand the two better. Don’t miss it.
Taking Stock of the Crypto Market
Stocks have been around for years and are a tried and tested investing method. However, many believe cryptocurrency is the future of investing. Stock exchanges provide vast marketplaces for the buying and selling of currencies and commodities all over the world, with an exchange in almost every country. Cryptocurrency exchanges, created to facilitate the buying and selling of cryptocurrencies, are a relatively new addition to the global marketplace. One thing cryptocurrency and stock exchanges have in common is facilitating trade. However, the way assets are traded, market volatility, and various other factors distinguish the two types of exchanges. This article will discuss the key distinctions between the cryptocurrency and stock exchanges.
Explaining the Markets
Cryptocurrencies are digital currencies that are powered by blockchain technology. They are typically used as a medium of exchange and a store of value. To secure and verify transactions, they use cryptographic techniques. The majority of cryptocurrencies run on decentralized networks, with supply and demand determining market value.
Stocks represent a portion of a company’s equity and reflect the value of a running business; a stockholder may be entitled to a part of the company’s profits in the form of a dividend. A stock’s value can fluctuate based on the company’s performance and other factors such as relevant news announcements.
Key Differences
- Ownership – To buy and hold stock, a buyer must typically open an account with a brokerage firm. The brokerage executes trades and holds stock on behalf of the buyer. Personal information such as a buyer’s Social Security number and address are also required. Using a brokerage adds an extra level of security. Anonymity is one of the perceived benefits of cryptocurrency; nobody needs to know who is buying it. The assets of a cryptocurrency owner are stored in a virtual wallet or on a storage device, such as a USB drive. The disadvantage of anonymity is that security is the responsibility of the owner. Owners have few options if hackers empty their crypto wallets.
- Volatility – Because the value of both cryptocurrency and stocks can fluctuate, investing in either can be risky. However, cryptocurrency has a reputation for experiencing unexpected and drastic price changes. Stocks, on the other hand, are directly linked to companies that are required to publicly and regularly share how they have been performing and how they expect to perform in the future. Investors may be able to use that data to reduce the risk of volatility.
- Trading Hours – Another advantage of cryptocurrency is that the market is open 24 hours a day, seven days a week. Like any other business, stock exchanges have hours of operation, typically between 10 a.m. and 4 p.m., Monday through Friday. After-hours orders can be placed, but prices will not be updated until the market reopens. This can make it difficult to respond quickly to breaking news if it occurs overnight or on the weekend. In contrast, cryptocurrency markets are always open and active. To support this new paradigm, cryptocurrency platforms are expanding their live customer support hours. As a result, even night owls can get assistance if they require it.
- Transparency – The law requires publicly traded companies to maintain a certain level of openness, typically from quarterly financial updates, annual reports, regular shareholder meetings, and other official means of updating investors on past performance and expected future earnings. While companies that raise funds via a Security Token Offering (STO) may have similar reporting requirements, crypto projects are generally not subject to the same regulatory scrutiny as publicly traded companies.
- Diversification – Many investors want to build a diverse portfolio that performs differently in different markets. In general, stocks often track the broader economy and are heavily influenced by factors such as inflation. Some cryptocurrency supporters believe it is a non-correlated asset, which means it does not react to market events like traditional securities such as stocks and bonds. Some think it could act as an inflation hedge, making it a valuable counterweight in a portfolio with more inflation-sensitive assets.
