In the recent past, there is a new investment option available i.e. cryptocurrency. They are very exciting as they can jump up to 100000% in very short span of a day. While on the other hand, they are equally risky as they can go to zero in minutes. Every investor is contemplating the gain/loss between stock market vs cryptocurrency and wanted to try his hands on both. Let’s see who win the game between Stock Market and Cryptocurrency.
Before we compare both investment option, let’s briefly get familiar with both the investment options.
What is Stock Market?
The stock market is the place/platform where the portion of the listed companies stake is bought and sold. There are buyers and there are suppliers of the particular stock. The buyer of the stock become the owner of the company in proportionate to his share in the company. The economical rule of supply vs demand plays a role in deciding the price of the stock at a particular time. The stock market is regulated by the government authority and is 100% legitimate investment option.
An investor makes money by selling the stock at the higher price than the price at which he had bought the stock. Sometimes, depending on the company’s performance, the owner of the stock will get the dividend as declare by the company. This is an additional gain to the stock holder. The profit earned out of selling the stock and in a way of dividend is called capital gain. The income earned through the stock market is taxable in the hand of the investor.
What is Cryptocurrency?
The cryptocurrency is the virtual digital asset which is registered on the blockchain open source platform. The single unit of the cryptocurrency is known as token. Cryptocurrency is not a digital currency it is just a virtual token. Many people get confused and consider crypto as a legit digital currency. Cryptocurrency is highly volatile as it is completely unregulated. No government is controlling the circulation of this digital tokens. It is completely decentralized and being operated/control by many people like you and me.
This may sounds exiting that you are able to control the digital tokens, but the flip side is that it is highly risky and your money invested can be vanish in no time. Cryptocurrencies are also prone to theft/fraud. Since there is no regulation and no government is controlling, there is no guideline on its transaction. There are many platforms/ digital wallets available on the internet where you can buy and store this digital tokens.
Now that you have a basic and fair idea about stock market and cryptocurrency, we will now compare both the asset class and check which one is better.
Stock market vs Cryptocurrency
Market Volatility
Stock markets are regulated by the government and hence it is less volatile. Stock market works on the laydown guideline and processes. The stock price cannot flatulate more than certain % in a day. There is a set limit for both up and down side, so your money invested is safe to that extend. The owner of the company holds the major portion of the stock and he cannot liquidate its stake overnight.
While on the other hand, the cryptocurrency is completely unregulated and is traded freely without any specific guideline. Hence the volatility is very high. You have seen the gain/loss in a day up to 100%. This is possible due to non existence of any regulatory framework and few people holds the majority of the stake. So they can control the digital token by buying/selling in bulk. This event impacts the rest of the investor in either ways. In short, cryptocurrency is booming and busting investment option with high volatility.
Score : Stock Market - 1 Cryptocurrency - 0
Regulatory Control
Stock markets are regulated by the government and is a legit financial market for the investors. There are several regulations that the investor needs to abide by while investing in to the stock market. Even the stock broker has to comply with numerous regulations before starting his brokering business. There is a regulatory requirement of doing KYC (Know Your Customer) before you can start your investment in stock market.
Every transaction is recorded by your broker and same is submitted to the regulatory (SEBI – in India). The account through which you buy and sell the stock is also comes under the several regulations. All your transactions are linked to the PAN number.
There is no compulsion of any of the regulatory guideline on cryptocurrency. The crypto market is open platform and anyone can do transaction from any corner of the world. In the recent past, the government had tried to keep a tab on the crypto market by levy a few guidelines on KYC and taxation on the gain from the crypto trading. But that is limited to the transaction done through the crypto exchange only. The irony is that the crypto can be bought/sell through the decentralized wallets like Trust Wallet and Meta mask.
The other loop hole is that, I can buy/sell the crypto by creating the account on the US platform sitting here in India. This is done to hide the transaction done through India. Cryptos can be misused for illegal activities like terrorism and rotation of black money. So in the battle of Stock market vs Cryptocurrency, regulatory control plays a vital role. Hence, as per my opinion, the stock market wins a point here.
Score : Stock Market - 2 Cryptocurrency - 0
KYC (Know Your Customer)
Anyone who is buying / selling stocks needs to be register at any of the authorized broker in the country. No one can buy/sell stocks without broker as a middle man. So every account that is getting open by the broker, needs to pass by the KYC process. This process ensures that the person who intent to buy/sell the stocks is a legit person having a legit bank account. Each and every transaction done by that person is being recorded by the broker and is submitted to the regulatory. Hence at any point of time, the authority can check/audit the transactions done by the person. The identity is fully verified for trading in the stock market.
There is no such process of KYC while doing transaction in crypto market. There will be a transaction generated and will be stored on the blockchain platform which is open source. But the identity behind that transaction cannot be known by anyone. Crypto trading platform will generate one wallet address through which the entire transaction takes place. But the owner of that wallet remains anonymous forever.
Score : Stock Market - 3 Cryptocurrency - 0
Return on Investment
Here is the main point which everyone wants to know. Any investor, invest his money for gain. And believe me, there is no quick money in the world. Wherever you see quick money, is either a scam or a gamble. Stock market can fetch you good returns provided you have invested in the right company at the right time. The return from stock market is usually higher than the other investment options like fixed deposit interest, gold, real estate etc.
The new gen crypto market can fetch you high returns of more than 1000% in a short span. But that don’t work every time. You have to be very lucky to win that lottery of 1000% gain on crypto investment. Most of the time, the money invested in crypto is vanished by either price drop or by scam/fraud listing. The probability of the return on crypto investment is very less. The owner of the crypto token, tries to promote his token by various means like social media, influencer marketing, brand tie-ups etc. This is done to attract innocent investors and then the owner suddenly vanished or become inactive. There is no movement/action is seen on the crypto once it is famous and plenty of innocent people are trapped.
Score : Stock Market - 4 Cryptocurrency - 0
Risk
Well, both stock market and crypto market are risky. Both have their own dynamics which can erode your money. You might be thinking that risk is higher in crypto market as compared to stock market, right?
No! stock market carries equal risk as the crypto market. If you are aware about the derivative market (Stock Option and Futures), you know the risk associated with it. Stock Options and Futures carries higher risk than crypto market. In options and futures, the invested money can go to zero in no time.
The only risk stock market doesn’t have and crypto market has is the risk of fraud. Fraudulent activities are higher in crypto market as it is not regulated and the identity is anonymous. So I will give equal point to both stock market and crypto market.
Score : Stock Market - 5 Cryptocurrency - 1
Should You Invest in Cryptocurrency?
Cryptocurrency market is highly volatile and risky. Investing a major chunk of your investment can have adverse impact on your money and your capital can be vanished in no time. On the other side, it has high risk high return capability. So, if you want to try your hand in crypto market, do it with only 5% to 10% of your asset(money) allocation into it. Take the test ride and feel the roller costar like experience.
Hope the above information is helpful in making an informed decision about your cryptocurrency investment. If you like this comparison between stock market vs cryptocurrency, then please share the same with your family and friends. Do let me know your experience of crypto or stock market investing in the comment below.