Cryptocurrency vs Stock Market – Which is the Better Choice?

When comparing cryptocurrency to stocks, stocks are the safer asset, though that does not mean you should completely rule out crypto.

Since its inception in 1602 by the Dutch East India Co, stocks have been a popular investment vehicle. However, a new type of investment has emerged in the last decade that challenges existing financial systems. Though less than 5% of the world currently owns cryptocurrencies, it is quickly gaining traction among retail and institutional investors alike. In June 2021, El Salvador became the first country to make Bitcoin legal tender, while a handful of other countries have plans to accept crypto as legal tender soon.

With the introduction of cryptocurrencies, investor interest in the crypto market has surged significantly. As global crypto adoption climbs, the debate on the top investment choice remains – cryptocurrencies or stocks?

Key Takeaways

  • Both stocks and cryptocurrencies are high-risk, high-reward assets you can incorporate into your investment portfolio to build wealth.
  • The stock market is highly regulated and centralized while the crypto market is unregulated and decentralized.
  • There are notable differences between stocks and cryptocurrencies, including their unique selling propositions, profit potential, volatility and risk, and more.

Intro to Stocks and Cryptocurrencies

Stocks and cryptocurrencies are high-risk, high-performance assets that have allowed millions to gain financial freedom over the years. You can get access to them through different online platforms, such as brokerage accounts, digital exchanges, and mobile apps, which has enabled unprecedented retail access to investment opportunities on a global scale. As a new investor, you may be asking yourself which is better suited for your portfolio. While they may look and act alike when you place buy and sell orders, they are not quite the same.

Stock Market

The stock market is a collection of markets and exchanges around the world where investors can buy and sell shares of publicly traded companies, such as Tesla, Costco, Visa, and Apple. In the U.S., most trading takes place either on the NASDAQ (National Association of Securities Dealers Automated Quotations) or NYSE (New York Stock Exchange). Traders and investors buy and sell stocks to profit using various strategies, such as day trading, buying the dip, and buying-and-holding.

Stocks, or equity, represent partial ownership in one or more companies. Investors can profit either by receiving recurring dividends or selling the stocks at higher prices. Unlike cryptos, stocks are heavily regulated. If anything goes haywire, the government will step in to prevent the stock market from collapsing.

Cryptocurrency Market

Bitcoin was the first cryptocurrency to make its debut in 2009 under pseudonymous founder, Satoshi Nakamoto. It is a digital asset that can be stored and traded through decentralized networks using blockchain technology. Since its inception, the value of Bitcoin has grown more than 10M%! In comparison, the average annual return of the S&P 500 in the past 10 years is roughly 13.6%, according to Goldman Sachs data.

Bitcoin Growth (2013-2021) - Statistica
Bitcoin Growth (2013-2021) – Statistica

Aside from the exponential returns, traders and investors are drawn to this alternative asset for several reasons. Because cryptos do not have a central authority and govern by consensus through peer-to-peer (P2P) technology, you can make payments anonymously without any third parties. They are highly secure and difficult to hack (though not impossible), making it easy for cross-border transactions.

Because of its independent and decentralized nature, anyone with access to hardware systems can become a miner or create their own altcoins. For example, meme coins such as Dogecoin and Shiba Inu were created by bored programmers as a joke. That is very different from the stock market, which abides by rules set by government agencies such as the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Key Differences Between Stocks vs Cryptocurrencies

Stocks and cryptos carry distinct functionalities that may make them more attractive than the other to different traders and investors.

crypto vs stock market

1. Unique Selling Propositions (USPs)

At a high level, stocks represent an ownership right. When you purchase shares of a company’s stock, you become a shareholder in the company and are entitled to a portion of its profits. As a shareholder, you make money if the company profits and lose money if the company takes a loss.

Stocks act as a store of value. You cannot use stocks as a form of payment for goods and services, though you can liquidate your positions to get access to fiat currencies or leverage existing positions using margin. If you are a new investor, the easiest way to buy and sell stocks is by opening an online brokerage account through a brokerage firm such as Fidelity, Charles Schwab, Vanguard. I have an individual brokerage account with Webull and a Roth IRA under Fidelity, though I have also used Robinhood and TD Ameritrade in the past.

On the other hand, cryptos are digital currencies you can use as both a medium of exchange and a store of value. When you buy cryptos, such as Bitcoin and Ethereum, you get allocated tokens or digital coins. But, they do not represent a legal stake in the organizations that issue them (if any). Rather, you are investing in the technology and potential use cases behind the crypto.

Similar to commodities such as gold and silver, cryptocurrencies are speculative assets. They derive value from community adoption, network effects, and scarcity. However, because crypto is secured and managed through cryptography, you have complete control of your funds as long as you have access to your private keys. You can purchase crypto using a cryptocurrency wallet, or digital wallet. You can use crypto exchanges such as Coinbase and Coinbase Pro or cold storage, such as Ledger Nano X or Trezor Model T.

2. Profitability and Time Invested

Investing in stocks requires a lot of patience and time. For most investors, the only way to earn significant returns is through holding positions for years or decades.

On the other hand, cryptocurrencies have historically yielded exponential returns in a short period compared to stocks. For example, Solana (SOL) was worth roughly $1 in May 2020. Fast forward to November 2021, its price went up more than 200x before tumbling to $17 (as of June 2023). Still, that’s a 17x return in 2 years!

solana market price chart
Solana Price Chart (May 2020 – June 2023) | CoinMarketCap

Comparatively, the returns from the crypto market far outpace the stock market. Thus, while both assets require taking similar levels of risks (depending on what stocks you purchase), buying cryptos allows you to pick faster horses for higher returns.

Crypto 5-Year Market Capitalization | Trading View
Crypto 5-Year Market Capitalization | Trading View

Receiving Dividends vs. Crypto Lending

Another notable difference is how you can earn passive income. Established companies in the stock market, such as Apple, J.P. Morgan, and Target, pay regular dividends to shareholders on a quarterly or annual basis. In the crypto market, the concept of dividends exists — but not in its traditional form and it comes with more risk.

3. Volatility & Risk

Cryptocurrencies are much more volatile and risky than stocks due to their rapid price fluctuations. As fast as cryptos can rise, they can tumble just as quickly. As a result of the volatile behavior of the crypto market, many investors are hesitant to invest.

Though stocks are considered the safer investment between the two, if you have a relatively high risk tolerance and a solid investment strategy, the volatility of crypto may not matter as much to you, especially since cryptos have trended in the same direction as tech stocks in the past. Similar to how we have blue-chip stocks, the same applies to crypto. Bitcoin is often touted as digital gold by supporters, while Ethereum is a close second. 

From a profitability standpoint, cryptos yield much higher return potentials and are a high-risk, high-reward medium. But, in terms of risk, stocks are generally less risky overall and are a medium-risk, medium-return asset.

4. Ease of Use and Transaction Fees

The timeframes for when you can trade these securities and their associated transaction fees are important factors to consider.

Trading Hours

The stock market is only open during business days and set hours. In the U.S., the stock market opens from 9:30 AM to 4:00 PM ET Mondays to Fridays. However, some brokerages, such as Webull, allow pre-market and after-hours trading from 4:00 AM to 8:00 PM ET. That means investors and traders will not be able to trade outside of these hours. Additionally, the exchanges are closed during certain holidays, such as federal holidays.

Cryptocurrency exchanges stay open 24/7, so investors and traders can trade non-stop if they want. However, this can lead to a constant state of FOMO (fear of missing out). For example, for several years, I always had crypto charts open on my laptop to check prices and look for bargains.

Transaction Fees

Most brokerage firms these days offer zero-commission trading, meaning you do not have to pay any upfront fees when buying and selling stocks. However, certain investments, such as options, index funds, exchange-traded funds (ETFs), and mutual funds may have a small expense ratio.

On the other hand, buying and selling crypto or withdrawing funds from crypto wallets can incur high transaction and gas fees depending on demand. Whenever I buy crypto on Coinbase, for example, I typically get charged anywhere from $1 to $5 depending on the traffic at the time for the specific coin and how much I buy. Additionally, all transactions are non-reversible and publicly available. That means if you make a mistake, you may not be able to recover your crypto.

5. IPO’s vs. ICO’s

When a private company’s leadership wants to take their company public, they can go through an initial public offering (IPO) to list its shares on a stock market. Another popular option is to go public through a special purpose acquisition company (SPAC), a black check company created to raise capital. Typically, the company has 2 purposes for going through an IPO. It allows them to raise capital for expansion purposes without having to get loans. Additionally, it provides early investors and internal employees an opportunity to profit by selling their company shares.

Unlike the stock market, any organization or individual can issue crypto. Companies that want to develop crypto projects can raise capital by offering an initial coin offering (ICO) to the public. For example, in June 2021, Solana Labs raised over $300M from investors, including Andreessen Horowitz and Polychain Capital.

6. Legalities

Stocks and cryptocurrencies are both legal. However, the stock market is more established and centralized, making it less likely for fraudulent activity. Comparatively, digital assets like SCAM and Garlicoin are more prone to pump-and-dump schemes and fraudulent activity due to their decentralized nature.

Whereas public companies are required to publish reports on their operations and finances, cryptocurrency projects are not required to provide financial statements or forecasts. With thousands of altcoins available to the public, the lack of regulation and transparency can make it very difficult to analyze the value of various digital assets.

As mentioned earlier, shareholders have legal rights to a part of company profits, such as dividends. Though crypto investors have full ownership of their digital currency, they do not have legal rights. If a crypto project gets hacked, the investors are not entitled to get their funds back (Think: Dao hack).

Which One Should I Invest In?

Before investing in stocks or cryptocurrencies, consider your risk appetite, available funds, investment goals, and financial knowledge.

The Argument For Stocks

Having your money in a savings account is not ideal as inflation often far outpaces the interest you earn. By putting your money to work in the stock market, you can grow your money faster and achieve high returns. Though the stock market has its risks, you can expect an average 10% annual return if you stay consistent and invest wisely over time.

Buying stocks also allow you to invest in companies that you like. For example, if you regularly use Apple products, you can invest in the company by buying their stock. If you are bullish on electric vehicles, you can invest in EV companies like Tesla or Lucid Motors.

The Argument For Cryptocurrencies

While crypto has a reputation for being a high-risk investment, we believe crypto has a place even in conservative portfolios. Over the years, the world of cryptocurrency has often gotten associated with illicit activities and scams. However, crypto has several legitimate use cases, such as providing access to personal finance for the unbanked, distributing computing, and paying for goods and services.

The Argument For Both

As a middle ground, you can also invest in both assets to diversify your portfolio. Currently, most of my money is tied up in the stock market, but I also have a portion in crypto.

A common strategy for determining how much to invest in stocks is to subtract your age from 100. The result is the percentage of your portfolio you should invest in stocks. For example, if you are 25, you would invest 75% of your portfolio in stocks. On the other hand, experts typically recommend investing no more than 5% of your portfolio in cryptocurrencies.

Bottom Line

While both the stock and crypto markets carry risks, the key is to take calculated risks. That means managing your risks appropriately and doing your homework before making any investment decisions. As investors in cryptos and stocks ourselves, we believe that digital currencies are the future, but stocks are a crucial part of any diversified portfolio.

We are not financial advisors. The content on this website and our YouTube videos are for educational purposes only and merely cite our own personal opinions. In order to make the best financial decision that suits your own needs, you must conduct your own research and seek the advice of a licensed financial advisor if necessary. Know that all investments involve some form of risk and there is no guarantee that you will be successful in making, saving, or investing money; nor is there any guarantee that you won't experience any loss when investing. Always remember to make smart decisions and do your own research!

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