The cryptocurrency market and stocks are two large markets in which a large volume of transactions takes place today. But these two markets have several fundamental differences that shapes the specific characteristics of that market. First, let’s look at the characteristics of each market and describe it. Finally, we will compare the differences between cryptocurrency and stocks.
Stocks
Stocks show the percentage of a business. They are the value of a company and they change their value in the market based on the performance of that company. So the price shown in the market indicates the value of that company. Let me give you an example: Imagine company x is worth $100 worth of stock. If the company performs poorly, the company’s stock will fall in the market, but the stock itself still belongs to that company and reflects its value.
Cryptocurrency
The story of digital currencies began in 2009 with Bitcoin. In the early days of Bitcoin, there was little value for digital currencies. But today, Bitcoin is traded in the digital currency market for several thousand dollars, and other digital currencies, which are gradually increasing in number, are also active in this large market. These digital assets will be stored digitally in your wallet. The value of a digital currency depends on many factors, including supply and demand levels, regulations, media coverage, trading volume, and so on.
The Similarities of The Two Markets
Digital currency markets and stocks have similarities. In the early days of the traditional stock market, financial guides or brokers took money from people and added it to the stock market themselves. But with the advancement of technology today, the advent of brokerages and digital exchanges, you can access the stock market. Therefore, in terms of digital performance, it is similar to Cryptocurrency. Also, trading plans and layouts in these two markets are similar.
Differences Between Stock and Cryptocurrency Markets
Ownership
Anonymity in the world of digital currencies is one of the advantages of this network. You can buy your Bitcoin and save it in your exchange account or wallet or start trading. These transactions do not require any identifying information from you and you will be anonymous. You have complete control over your digital currencies and you can store them in wallets (hardware/software) which are very large and support a lot of security.
But this is not the case with the stock market. To enter the stock market, you must create an account and confirm your identity information. You must have a brokerage account to access the market and these companies will ask you for information such as an address, contact number, etc. After that, by buying a company’s stock, you have a percentage of that company’s ownership until you decide to sell it. So there are big differences between cryptocurrency and stocks in terms of the level of anonymity.
Transaction Fees
When you buy a stock (even at a very low value) you have to pay a transaction fee. These fees may be low if you buy large, high-priced stocks, but they are high for those with small amounts in the market. Let’s look at the world of digital currencies. What is the status of transaction fees in this market?
In the world of digital currencies, you need to pay a very small transaction fee to transfer very, very large amounts. Let me give you an example of a digital transaction. A Bitcoin whale has paid just 78 cents to move $ 2 billion! If the transaction is done through regular payment services, it will need to pay 1% to 3% of the total value (about $ 20-60 million). However, the transaction fees of different coins in the market are different from each other.
Exchanges
For digital currencies, there are many different Exchanges that users run to. Among the most famous is Binance with Volume (24h): $ 29,387,811,699, which ranks first. But stock exchanges, which have been around for almost 2 centuries, have a much larger trading volume. Comparing the NASDAQ (which is a small part of the global stock market) and Binance at one time, the NASDAQ showed 5 times more trading volume than the Binance.
Trading Hours
Stock markets are open during Weber business hours, depending on the country, from Monday to Friday, and the market is closed on weekends. So in Trading Hours, there is a limit to the stock market. But this is not the case in the digital currency market. Digital currency market exchanges are active 24 hours a day, 7 days a year, and trading can be done on the network without any time limit. So another fundamental difference between cryptocurrency and stocks can be considered in Trading Hours.
Liquidity
Stock market participants consider stocks liquid because there are many actors and investors in this market. But in the digital currency market, each digital currency is different from the other digital currencies. Bitcoin, for example, is more liquid than the lower-ranked digital currencies. The reason for this difference is the higher trading volume of Bitcoins. Finally, due to the lower levels of liquidity in the digital currency market, there are more slips for investors.
Diversification
In the stock market, most investors are looking to build a portfolio with diversified holdings. The reason for this is to diversify their own assets. This is because the various stocks are linked to the surrounding world and inflation and are under wider economic impact. But there are two perspectives on digital currencies:
- People who find digital currencies unrelated to traditional and global events.
- A group that can act as a hedge against inflation.
Market volatility
Both markets have volatility and price increases and decrease according to their own conditions. In stock markets, investors have information and reports on the general performance of companies and their financial situation.
There are drastic price changes in the digital currency market. These changes are sudden and sometimes unannounced. These price changes and volatile conditions act as a double-edged sword and can be useful for swing trading on the one hand and resulting in severe financial losses. There is even a possibility of losing capital in this market and many digital currencies have been destroyed during this period. Companies can also go bankrupt, but this figure is higher for digital currencies.
Regulation
Several organizations, including national agencies such as the Securities and Exchanges Commission (SEC), oversee the stock market. So the stock market is in the hands of governments. This is one of the things that digital currencies lack. The digital currency market is largely unregulated. These decentralized networks are not regulated by any government and cannot be controlled. But it is also the cause of tax evasion and money laundering that limits or blocks the activity of digital currencies in some countries.
Rigged & Fraudulent
Given that the stock market is controlled by large organizations and governments, so they are encrypted from hacks. So rigging or fraudulent acts do not happen in the stock market because regulators monitor the market. But digital currencies are not like that, and since they are decentralized, there is rigging in it. If you lose your capital, you can not pursue it.
All the differences and similarities mentioned in the two; cryptocurrency and stocks markets reflect the characteristics of each of these two major trading markets. If you are interested in traditional and controlled systems, the stock market is your place. If you are interested in security, decentralization, lower fees, and longer trading hours, the digital currency market is the best option for you.