For a while now, cryptocurrencies have been gaining the attention of both small investors and larger investment funds. Many go so far as to say that cryptocurrencies will replace traditional fiat money in the long run. Others, however, warn that it’s just another investment and that we might experience the burst of this bubble.
The best way to approach this new trading option is to compare it to stocks. There are differences and similarities between the two, but it’s the difference that will tell you whether you should invest in cryptocurrencies.
There are clear rules about insider trading when it comes to buying stocks. It’s illegal to buy and sell the stocks of the company you work for if your position gives you insider knowledge of the future value of the company. You can’t divulge this information to other buyers either.
There are no such restrictions when it comes to cryptocurrency. Since it’s a new thing in the world of finances and a rather decentralized one, you can use the information you got from your friends in the tech world and make your purchases based on that.
Cryptocurrency markets are rather volatile. There was a period of growth that has drawn a lot of people in who would otherwise never invest, especially not in such a risky market. Also, cryptocurrencies are easier to create and crowdfund these days, which also makes the market less safe.
There are stocks, such as small cap stocks, with which you can avoid these risks, even though there’s always some to consider when investing. The returns are smaller this way, but you’re sure that your investments will pay off after a while.
Buying and selling stocks is, in fact, buying and selling a portion of a company. It’s a percentage of ownership, which means that at some point, buying stocks means that you get some control over the company you’re buying. This will let you decide when a company can be sold or when it can change its main purpose and goal.
This isn’t the case when you buy and sell cryptocurrencies. Technically speaking, you’re not buying currency, but the technology used to produce these virtual coins. However, that doesn’t mean you get the right to control the company behind it at any point.
As is the case with insider trading, so is with price manipulation. Cryptocurrencies are new and there are much fewer clear rules about them. This makes it easier to manipulate this market by insider info or by large-scale price dumping. This means that you might lose your investment even if you did everything right.
Such large-scale manipulation can’t happen with stocks. First of all, there are laws to prevent it and second of all, the systems put in place are too large to be manipulated in such a way. On the other hand, if you factor this in, you can still do pretty well with cryptocurrencies.
The biggest obstacle for an average entrepreneur is always the government and its regulation. This is partly about taxes, but more often, it’s about dealing with complicated rules and the complexity of entering into a field or an industry. All of this applies to trading stocks and it’s something traders need to deal with.
There are no such regulations and governmental hoops to jump through when trading in cryptocurrency. This is what attracts most young traders to them in the first place. However, it’s important to note that this also makes it less safe. In the end, now, when this trade has become such a big deal, many governments are already getting involved.
There are a few differences between trading in cryptocurrencies and trading in traditional stocks. Stocks are less risky but also more complicated to get into. This doesn’t mean that you can’t try both, depending on what you want to accomplish with your trading.