Cryptocurrencies Vs Stocks: Differences, Drawbacks and Which is The Best Option For Your Money
Cryptocurrencies Vs Stocks – You have accumulated some “savings” and want to dedicate them to investing. Naturally, the question arises: do I invest in shares or cryptocurrencies?
Cryptocurrencies are in the news every day due to their wild nature. They receive sticks everywhere but continue to break price records (at least the most popular).
These spectacular rises attract investors who are willing to take the risk. Cryptocurrencies are tempting, but for most, it’s uncharted territory. Wouldn’t it be better to invest in the old but familiar stocks?
You throw a question in the air in investment matters, and two experts will give you opposite answers. So we will not try to advise anyone, but we will describe the differences between cryptocurrencies and stocks when it comes to investing.
What is an action?
To understand the differences, it is essential to know exactly what each thing is.
A share a title issued by a corporation or limited partnership in the financial market based on its share capital.
This company (usually a company) has social capital (money and assets) with which it has been formed or earned by operating and decides to divide it into shares and sell them to obtain cash.
In legal terms, this is a significant difference with cryptocurrencies. If you have a share, you have part of the company. That gives you a series of rights, such as voting in the shareholders’ meeting (if you have enough shares) or participating in profits.
What is cryptocurrency?
A cryptocurrency is a digital currency; it does not physically exist. A mathematical algorithm has usually generated it.
It does not need a capital behind it, although some have it. Someone creates a new cryptocurrency, it can even be a simple user, and if there are people who decide to buy it, its price goes up. If nobody buys, the price goes down.
The unit of a cryptocurrency, such as a bitcoin, is an encrypted string of numbers, which the system recognizes as a legal unit.
Most cryptocurrencies are generated by algorithms that create coins by mining cryptocurrencies. A lot of processing power (potent gaming graphics cards) is needed to execute the mathematical operations that make a coin at high speed.
That computer that has participated in creating that unit takes apart. The more graphics cards your mining team has ( there are farms with thousands of cards ), the more money you’ll get.
It is one of the reasons that since a year ago, it has been impossible to find powerful graphics cards in stock. Due to the semiconductor crises and the increased demand of the pandemic, there are few, which are kept by cryptocurrency miners, willing to pay triple their value for them:
Mining cryptocurrencies as an investment?
Unlike stocks, which you have to buy, cryptocurrencies you can get for free if you mine them yourself.
That is the theory, but in practice in Spain, it is hardly worth it and less at the user level.
Most cryptocurrencies have a finite number of units, which their algorithm can generate. For example, there will be 23 million bitcoins, and 19 million have already been mined.
The fewer there are, or the more popular a cryptocurrency is, the more it costs to mine. A very high treating power needed to be able to take you some money.
And even if you spend thousands of euros on hardware, in Spain, electricity is costly; you cannot compete with mining farms with hundreds, thousands of graphics cards that operate in countries like Russia, Saudi Arabia and some Asian countries where electricity it’s almost free.
You can make some money mining little mined or very new coins, but mining cryptocurrencies is not the best option to invest in Spain.
What do they have in common?
Although, as we have seen, their origins are very different, the internal economy of shares and cryptocurrencies and how they get value is the same.
If there are financiers who want to buy at a price higher than the current price, the cost of the stock or cryptocurrency goes up.
If no investors want to buy and many investors want to sell, the price of the stock or cryptocurrency goes down.
They may operate the same, but their different nature means that the risks are also other.
The main difference between a stock and a cryptocurrency is that a company backs a stock. In contrast, cryptocurrencies do not usually have an entity or capital that serves as a pillar behind them.
Investing in stocks or cryptocurrencies is a bet: you bet that this asset will rise in price and earn money.
That action has a company behind it and reduces the risk. Suppose you buy shares of Apple, a powerful bank, or a pharmaceutical company that manufactures vaccines. In that case, you may hit a bad patch, and the shares will go down a bit, but you know that they will never plummet, at least in the medium term, because they are very stable.
The risk of stocks is more predictable than that of cryptocurrencies.
Even if the shares fall, they will always have something of value unless the company closes, and you will be able to recover part of the investment.
They do not need as much attention as cryptocurrencies. You can invest in stocks and forget about them for a year. With a cryptocurrency, it may have disappeared in a year or increased by 1000%
Another advantage of shares is that it is a way of investing born more than a century ago. There are many products associated with minimal risk that you can use, from investment funds to packages of shares of different successful companies and other formulas.
Disadvantages of actions
Being a product linked to a company, shares depend on events that have nothing to do with the economy.
They can drop suddenly due to a political decision of a government, a natural catastrophe, a wrong decision of the company’s management, or an unexpected crisis.
For example, a few days ago, even though Apple broke sales records last quarter, its shares fell due to the supply crisis, causing it not to have stock of components to manufacture.
Usually, share appreciation is much slower than cryptocurrencies, and you need to invest in the medium or long term to obtain significant benefits.
Advantages of cryptocurrencies
The main advantage of cryptocurrencies is that you can earn a lot of money in a short time if you are smart, have intuition, and have a lot of luck.
They are easy to get and require almost no paperwork. But be careful; you have to declare them and pay taxes on them (also the actions).
Cryptocurrencies created every day, but many die or forgotten. There are many opportunities but also a lot of risks.
Another advantage is that they are not just an investment. They also work as a currency, and many places accept them to buy everything from software to cars, as donations, etc.
Disadvantages of cryptocurrencies
The main problem with cryptocurrencies is that they usually do not have a government or a company that supports them. As we will see, some do have capital behind them, but they are a minority.
Citizens have created the vast majority, ordinary people (someone called them ” the people’s currency “), with all that entails.