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Investing in Cryptocurrency vs. Stocks: Which One is Better?

Trying to decide between cryptocurrency and stocks? Learn about both investment options here.

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Cryptocurrency is now a central talking point for investors of all backgrounds, due to the astronomical returns investors received from their crypto investment portfolio management. Still, many “old school” investors from Wall Street see cryptocurrency as nothing more than a fad and prefer to remain in the proven stock market. Regardless of one’s opinion, both cryptocurrency and stocks deserve some time in the spotlight but which one is better for you? 

Key points for stocks vs crypto

What is the Difference Between Stocks and Cryptocurrency?

While it’s true both stocks and cryptocurrency are types of investments, they are vastly different when you break it down. Here are a few examples of said differences:

  • Age: Perhaps the most obvious difference between stocks and cryptocurrency is how long they’ve been around. Some experts peg the birth of stock markets in the 1300s when Venetian money lenders started to trade securities from other governments and issue loans. Cryptocurrency however is much younger, starting in 2009 with Bitcoin.
  • Ownership Status: Stocks and crypto are different kinds of investments. When one buys a stock on the stock market, they are investing in the future growth of that company and physically owning a share of it. With cryptocurrency, ownership of a coin or token doesn’t mean you own part of the company, although governance tokens give holders a vote in the company’s development.
  • Utility: Holding stocks means you physically own a fraction of the company and you’re entitled to a portion of their assets and profits based on how much stock you own. In cryptocurrency, holding coins and tokens doesn’t earn you a share of the issuing company’s profits. Instead, investors buy a coin or token to use a payment method or as a store of value—amongst other things.
  • Issuance limits: Publicly traded companies may be able to issue new shares, based on their internal regulations and local laws. However, a cryptocurrency’s total supply is usually subject to the blockchain protocol it was designed with. There are usually hard caps on the total supply of every cryptocurrency’s supply that is unalterable, such as Bitcoin’s hard cap of 21 million, as the limited quantity is central to its value proposition as an investment. 
  • Method of trade: Stocks are traded on heavily regulated stock markets or stock exchanges. Cryptocurrency does not trade on these traditional markets. Instead, investors use a cryptocurrency exchange to buy and sell crypto and store the coins and or tokens on a digital wallet. You cannot buy crypto on a stock market and you can’t buy stocks on a crypto exchange.
  • Market access: Stock markets and exchanges operate during fixed business hours, However, crypto market hours are 24 hours a day, 365 days a year. This makes it easier for investors everywhere to enter and exit the market anytime. 
  • Legal rights: As mentioned above, buying a stock is buying a share of the company and as a result, the investor is usually given unique legal rights (e.g. dividends) over that investment. Cryptocurrency has no such legal rights. If you buy Ethereum (ETH) on Coinbase for example, and the Coinbase exchange gets hacked, Ethereum is not responsible for returning your lost ETH in the event of said hacking.  The crypto industry’s current state has much higher risk and few legal protection methods compared to traditional stock markets.
Summary chart of Stocks vs Crypto
Table 1: Summary chart of Stocks vs Cryptocurrency based on general characteristics

Crypto vs. Stocks: Risk and Reward

Segueing from the last bullet point in the previous paragraph, risk and reward are constant talking points amongst investors. Typically, the more one risks, the more money one could potentially make. However, this comes at a great cost since it also means one could potentially lose the investment as well.

Cryptocurrency investors are well versed in the risk vs. reward argument. Just recently, the decentralised finance platform Poly Network was hacked for $600 million, and perhaps most infamously, Mt. Gox was hacked for a massive $460 million in 2014. Those are just two examples and the list continues to grow each year. While the stock market is occasionally susceptible to Ponzi schemers like Bernie Madoff and large market crashes like in 2008, these incidents are few and far between compared to that in the crypto world.

So one may ask “if crypto is so risky, why do so many people invest in it?” As with many things in life, one just needs to follow the money.

ETH and USDT chart
Image 1: ETH/USDT chart 

Using this ETH/USDT chart as an example, it’s easy to see the returns one could get from just one year of investment. Back in August 2020, 1 ETH was ~$430. Fast forward to August 2021 and 1 ETH is currently at $3,210. That’s a 646.5% increase. Compared to the average stock market annual return of 10%—before inflation—it becomes quite easy to see millions around the world are adding cryptocurrency to their investment portfolio. 

Earning these profits is not an easy ride though. The cryptocurrency market is subject to extreme volatility. Case in point, May 2021. Cryptocurrencies across the board saw incredible drops from all-time-high prices that month. Using ETH as an example again, it fell from $4,378 to $1,7745 in just one month—a loss of over 60%. Hence, when comparing cryptocurrency vs. stocks, one should always consider these risks.

However, investing in cryptocurrency doesn’t always have to be a rollercoaster of highs and lows. Besides trading cryptocurrency on exchanges and exposing yourself to market volatility, a safer option is to invest in stablecoins like USDT and USDC, and deposit these into a crypto savings account on a platform like Cabital, where you’ll be able to earn passive income at leading interest rates on your USDT deposit. 

Cryptocurrency vs. Stocks: Tax Implication

Due to the perception of cryptocurrency as the ‘Wild West’, many think cryptocurrency investing means avoiding that hefty capital gains tax in most countries. While that was true in the early days of cryptocurrency, it is certainly not the case now.

Governments have caught onto the immense profits being made in crypto and have set up tax legislation to ensure they get their cut. As a result, cryptocurrencies are subject to the same capital gains tax as stocks. Therefore, it’s highly recommended you learn your local tax laws before selling your cryptocurrency. That being said, there is something unique that crypto has over stocks when it comes to tax law and that’s called tax-loss harvesting.

What is Tax-Loss Harvesting?

Taking a quick detour from our crypto vs. stocks debate, it’s important to learn about tax-loss harvesting as it’s a truly unique advantage crypto has over stocks and could help investors save a lot of money come tax time.

Essentially, every investment portfolio experiences volatility. There are times when a crypto portfolio is profitable and other times when it’s not. If one sells their cryptocurrency “in the green''—or when it’s profitable—they must pay capital gains tax on that profit. When the market is red, however, an investor can get an advantage by selling their crypto and harvest tax losses.

Tax-loss minimises the overall tax bill. Here is a quick example. Imagine you buy 1 Bitcoin for $50,000 in August of 2021. In September of 2021, the price dropped down to $40,000. If you sell your Bitcoin at that price and then buy another 1 BTC at $40,000 you can claim the capital loss due to the wash sale rule. That’s just something to keep in mind for those interested in crypto trading.

Cryptocurrency vs. Stock Market: Which One is Better?

Portfolio asset management is all about diversification. It’s never a good idea to put 100% of your investment in any one stock or cryptocurrency. Hence, the cryptocurrency vs. stock market debate has room for both. The advancements of blockchain technology and the adoption rate of cryptocurrency can simply not be ignored. In the year 2021, cryptocurrency should be a part of everyone’s asset allocation strategy. At the same time, stock markets are a good option for safe, stable growth that features the regulatory security that crypto lacks.

Spreading risk is a fantastic investment strategy to ensure one gets a healthy mix of risk, security, and profit. Cryptocurrency offers returns that are just as good—and in many cases better—than a traditional stock. However, don’t abandon stocks completely as they still have plenty of value in one’s portfolio.

Invest in Cryptocurrency Without Trading with Cabital Savings Accounts

In the past, bank savings accounts were a safe place to store funds outside of investments while simultaneously earning passive income. With the new addition of FinTech platforms though, it’s easy to add a new layer to your investment portfolio.

Cabital offers a competitive annual yield on stablecoins. This is in full legal compliance with European regulators and is a fantastic way to manage risk in the crypto market while still earning more passive income than your traditional bank savings account. 

So for those looking for a safe, stable addition to their crypto and stock portfolios, visit Cabital.com and discover a new, financially reliable way to profit.

Click here to start earning today

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