Don’t put all your eggs in one basket.
A sound investment portfolio should contain a diverse mix of assets. Risk management involves putting money into different kinds of investments, such as stocks, bonds, real estate, commodities, and cryptocurrency.
That said, let’s discuss two of the most popular financial assets: cryptocurrency and stocks.
When investing in any of these two assets, investors must strike a balance between comfort and risk. The ups and downs of stock prices might be dizzying, but they are not as extreme as the ups and downs of cryptocurrency. However, while crypto provides larger payouts than equities, stocks are regarded to be safer.
To achieve success in investment, one must understand the strengths and weaknesses of each asset and the role they play in a portfolio.
Cryptocurrency vs. Stocks
Cryptocurrency and stocks as investment choices serve different purposes. Here’s a look at key characteristics of crypto vs. stocks:
Ownership
To buy and keep stocks, a buyer usually has to open an account at a brokerage. The brokerage makes trades and holds stock in the buyer’s name. A buyer also has to give personal information, like their legal name, birthday, and full address. On the other hand, going through a brokerage provides a certain level of security.
One of the advantages of crypto is the complete anonymity of investors. Nobody needs to know who's buying or selling crypto, especially when the exchange is being done on a decentralized exchange.
A person who owns Cryptocurrency can store their assets in a software or a hardware wallet and the owner is responsible for keeping track of the crypto and remembering the wallet’s password.
One problem with this approach is that if someone hacks into a person's crypto wallet, the owner will have little or no way to get their money back.
Deriving Value
Investors earn when the stock's value grows, which might be linked to the company's success. The more money a corporation makes, the more its stock should grow. A stock's value might rise even if the company's performance is expected to improve in the future. Due to bad company performance or deteriorating economic conditions, a stock's value decreases. Because stocks are dependent on fiat currency, they are especially susceptible to inflation.
Cryptocurrency derives its value from the fact that it’s limited in quantity and has many utilities in the real world. Like the applications of precious metals and other commodities, a crypto’s blockchain has some applications across financial services. Also, cryptocurrencies are not directly affected by the monetary policies of central banks, so their prices are less affected by inflation.
Exchanges
Stocks are traded on accredited exchanges throughout the world. They offer stock buyers security, stability, and transparency and are built to handle large trading volumes every day. Exchanges are strictly regulated, providing protection to both buyers and sellers.
Exchanges for buying and selling cryptocurrency are newer. There are a lot of crypto exchanges nowadays, including marketplaces for NFTs (Non-Fungible Tokens). For example, you can buy a cryptocurrency on Coins.ph and directly exchange it for PHP.
Volatility
Stock prices can fluctuate rapidly. Good news may propel a stock upward, while bad news might drive it lower. Stock markets may plummet in a single day, as the phrases "Black Friday" and "Black Monday" show. There is usually a reason, either economic or technological. Investors' portfolio values may fall, although full losses are uncommon.
One thing cryptocurrencies have been known for is their volatility. The price of crypto remains highly speculative. Bitcoin, for example, was introduced to the public in 2009 and began its rise to popularity around 2010. At the time, 1 BTC was worth around $0.09. Since then, its price has increased by tens of thousands of dollars—sometimes rising or falling by thousands of dollars within days.
Regulations
The Securities and Exchange Commission (SEC) was set up by the government to make and enforce rules that protect investors. Companies are required to disclose all information that can have an impact on their stock value. Investors and their financial advisors have a good deal of information on which to base their investment decisions.
By contrast, cryptocurrencies remain largely unregulated. For some crypto investors, an unregulated asset provides a lot of advantages. Crypto markets know no borders and are beholden to no governments. Still, if you want some level of protection, some exchanges like Coins.ph is regulated by the Bangko Sentral ng Pilipinas (BSP). It is the first-ever blockchain-based company in Asia to hold both Virtual Currency and Electronic Money Issuer licenses from a central bank.
Trading Hours
On regulated stock exchanges, securities are more secure, stable, and transparent. Investors, on the other hand, are confined to trading only during predetermined business hours.
Conversely, the crypto market runs around the clock every day of the year. Investors can buy or sell cryptocurrency at any time, which is beneficial for part-time traders who can only monitor the market at a specific time.
Governance
At annual stockholder meetings, people who own shares can vote for members of the board of directors and on company policies. They generally have little say in how a company runs from day to day, but if enough investors team up (which is rarely the case), they can have an impact on the company’s direction.
A DAO (Decentralized Autonomous Organization) is a community-led entity with no central authority. It is fully autonomous and transparent. A cryptocurrency’s smart contract lays the foundational rules and executes the agreed-upon decisions of the DAO. The whole community can look over proposals, votes, and even the code itself. Ultimately, a DAO is governed entirely by its individual members, who collectively make critical decisions about the future of the crypto project, such as technical upgrades and treasury allocations.
Disclaimer: The information and publications in this article are not intended to be and do not constitute financial advice, investment advice, trading advice, or any other advice or recommendation offered or endorsed by Coins.
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