Stocks or equity were typically the go-to investment for new investors, but that is less so since cryptocurrencies came into the picture. Both asset classes can be used by investors to build wealth, even though they have significant differences.
3 stand out differences between investing in crypto vs stocks include:
- Unlike stocks, investment in crypto doesn’t come with ownership of a share of a company
- Crypto investors don’t receive dividends in the traditional sense. Instead, one can lend or stake their crypto tokens for passive income
- You can buy crypto at any digital currency exchange at any time of day and night, while stock exchanges operate within limited opening hours on weekdays
Cryptocurrencies, while they have made it easy to invest, also have their drawbacks.
Here are the leading pros and cons of investing in cryptocurrencies.
- Accessible: Crypto is borderless, and anyone with an internet connection can use it.
- Decentralized: Most cryptocurrency systems don’t rely on a central authority, making crypto resistant to censorship and centralized control.
- Inflation-resistant: Cryptocurrencies aren’t directly influenced by central banks’ monetary policies, so their prices are less malleable to inflation. However, cryptocurrencies are not all the same, so it’s important to consider the issuance rate and supply of each crypto asset.
- Flexible: Compared to stocks, there are more ways for investors to grow their crypto holdings besides trading. Crypto investors can get profit from yield farming, staking, and providing liquidity. Products such as Binance Earn are a great example of how you can increase your crypto holdings.
- Varied: The value of many tokens is not just monetary. For one, Fan Tokens can provide token holders exclusive benefits and privileges with their favorite sports teams or brands. Some cryptocurrencies are governance tokens, which give holders the right to participate in the development of a respective project or protocol.
- Price volatility: The crypto market is famously prone to dramatic price swings. The potential for quick gains can be very attractive to new investors. However, they should be aware that its flipside is the potential for equally dramatic losses.
- Imperfect regulation: Cryptocurrencies are legal in many countries, but they’re not fully and universally regulated. Investors should be mindful of potential compliance issues and do legal research according to their location.
- Custody risks: Cryptocurrencies like Bitcoin require a private key to access the tokens stored in a digital crypto wallet. Forgetting a seed phrase or losing a physical crypto wallet could result in losing access to your crypto forever.
- Returns not guaranteed: Like any financial market, there are no guaranteed returns with crypto. While Bitcoin and other altcoins performed well in the long term, there is no guarantee that they will continue going up in the future, and there is always a chance they may not do well during a shorter investment period.
There are thousands of cryptocurrencies out there in 2022, and many more are coming.
Regardless of which one you choose to invest in, always make sure you’re aware of the associated risks and do your own research.
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