Crypto vs Stocks, what's the better investment in 2023?
Learn about the similarities and differences between Stocks and Crypto and which is the better investment.
In this Course:
1. What is Crypto?
Crypto, short for “cryptocurrency,” is a currency that is completely digitalized, i.e., stored on technological devices, as opposed to being in a physical form. Crypto is a new innovative asset type that can be seen as a high risk but also a high reward investment.,
Bitcoin is an example of the first wide-spread Cryptocurrency to exist, founded in 2009. Since then, it has reached an all-time high value of over $68,000 per Bitcoin, being priced at under $1 in February 2011, before the emerging popularity it received.
Cryptocurrencies can be used for all sorts of reasons, such as asset tokenization for companies, payments, applications, networks, gaming, transactions, and pretty much anything digital.
Crypto utilises cryptographic technology, commonly referred to as ‘Blockchain technology’. Blockchain technology is what makes these currencies extremely secure. The technology makes all transactions visible, traceable, secure, and decentralized.
If you were to invest in cryptocurrencies, they can typically be sold on large cryptocurrency exchanges such as Binance and Coinbase. Similar to the stock buying process, you execute a market order of your desired cryptocurrency, and then you can store the digital tokens on that exchange or in a personal order.
The value of a cryptocurrency is dependent on the following factors: Company performance (if company-related), total and maximum supply of the token, Utility: how much the token is actually used in the real world. Demand – How much hype and engagement a currency gains.
2. What are Stocks?
Stocks, rather than being digital currencies, instead represent a share in the ownership of a specific company. This means that the stock price is therefore directly correlated to the success of a company—the better a company performs, the more your stock will be worth.
Stocks have been around in the economy for many decades and, on average, will yield around a 10% return on investments in the long term. They can be seen as a low risk investment, with typically a lower return than asset types such as Crypto, but safe long term prospects.
There is a limited amount of stock that a company will issue. If, for example,
A publicly traded company issues 1,000 shares worth 100% of the total value of the company.
Let’s say the company’s value is $1 million.
Stock value = Total value of the company ($1 Million) / amount of stocks (1000)
So in this example, the price per stock is $1,000.
Huge corporations such as Tesla, Amazon, and Netflix have all proved to be among the best-performing stocks over the past two decades. This correlates to their extremely strong performances in the real world, at a time when these corporations have dominated their industries and gained huge market shares. In return, shareholders have received huge returns on their investment in line with market movements.
For example:
Netflix was valued at $25 in January 2011. The stock price rose to an all-time high of $691 in October 2021. This saw investors who sold at the peak, see a 27x return on their investment over this 10 year period.
3. Why Cryptocurrencies are better
The following are some of the benefits of investing in cryptocurrencies:
Hedging against inflation
Bitcoin, the original cryptocurrency, was created as a hedge against inflation, meaning that the total supply of Bitcoin is coded to be a finite or fixed amount. For example, there are 25 Million total Bitcoin that can ever exist, no matter what. The benefit of this is that the existing owners of Bitcoin cannot have the entire value of their currency devalued by more Bitcoin being printed, unlike the current monetary system.
From an investment point of view, while the demand for bitcoin increases, the supply will remain the same, meaning that the price surges upward.
Decentralization
Cryptocurrency aims for a decentralised nature, meaning that there is no central organization, government, or authority that controls the network. This means that inflation and monetary policies that could devalue an asset are less likely, as typically, decisions on a cryptocurrency will be community-based.
From an investment point of view, this means there is more trust in the investment and the project you invest in, and you can have a say in the on-going decisions.
Return on investment
Return on investment is one of the most attractive features of investing in cryptocurrencies. Bitcoin is the famous example, with a value of $1 in 2011, it then rose over the span of 10 years into 2021, to an all-time high price of $68,000. This is a mere 68,00x return on your investment if you held bitcoin over these ten years. Cryptocurrency projects are popping up all the time, yielding crazy returns like these.
From an investment point of view, due to the extremely promising returns you can see with crypto, many investors are attracted to these life-changing investment opportunities.
Emerging technology
With the ever-emerging digital and technological world, there is a constant need for advancement. Cryptocurrency utilises blockchain technology to advance the current existing network systems. This blockchain technology has the potential to change the existing corporate world, providing companies with benefits such as increased security, increased speeds, improved scalability, interoperability with other systems, de-centralization, and asset tokenization.
From an investment point of view, although speculative, many investors see Crypto as an investment for the digital future with the seamless benefits it already provides.
However, the following drawbacks come with cryptocurrency investments:
Volatility
The prices of cryptocurrencies are extremely volatile, meaning that price can fluctuate up and down very easily, from day to day. As cryptocurrencies are valued based on the total amount investors invest in a project, in anticipation of the price and demand rising, it means that any breaking news stories or events can impact the price hugely. For example, if there is a negative news story, it will cause mass panic among investors and mean that huge selling pressure will arise.
From an investment perspective, volatile investments will scare a lot of investors away, meaning that long-term investments should be the priority.
High Risk
Bitcoin was founded in 2009, which really sprung the crypto industry to life. In relative terms, however, cryptocurrency is really in its infancy, having been truly present for just over 10 years. When you compare this to industries such as stock markets, which have been around for decades, it’s clear there is still some risk involved in the investments. There is little regulation at present protecting investors from scams, and the truly volatile nature, something that will precede as time passes by, means that you can lose a lot of money.
From an investment perspective, it is more attractive to those who are willing to lose their money and “gamble” it in a sense than to regular investors, due to the uncertainty surrounding the industry.
Lack of Regulation
Something that is categorically needed within the crypto space is more regulation and laws in place to protect investors. This is because, far too often, there are cases where investors who are new to the cryptocurrency space are subject to scams, pump and dump schemes, or hackings. For example, there are many scam impersonators on social media sites trying to scam users out of their cryptocurrency holdings by asking for personal login details. Pump and dump schemes are a thing too, where a team will dump all their tokens on investors based off of lies and will run away with money they made from helpless investors.
From an investment perspective, these factors make investing into cryptocurrency something that is feared due to the stories you hear surrounding the industry.
4. Why Stocks are better
The following are some of the benefits of investing in stocks:
Low Risk
The general consensus within the stock industry is that over the long term, stock investments are safe. This is because, on average, over long time frames, they will incrementally increase in value as the economy advances. This has been the case for many years, and barring the odd crash, it seems likely to continue.
From an investment perspective, this makes investing in stocks enticing as you are almost “guaranteed” decent returns on investments.
Actual Value
As mentioned previously, stock prices are dependent on actual company earnings, whereas cryptocurrencies are not. This means that your investments have actual value, as solid company performances and financial statements will yield actual returns.
From an investment standpoint, this entices investors to buy stocks as they can plan and predict which industries and companies will succeed.
Regulation and Protection
Again, as mentioned throughout, stocks are in a fully mature environment, and this comes with regulation too. The Securities and Exchange Commission (SEC) legally require companies to publicly report their earnings, meaning that there is no shadiness within the industry, and the potential returns investors should receive.
From an investment perspective, this means that investors are more protected and less susceptible to pump and dump schemes.
However, the following drawbacks come with stock investments:
Low ROI (return on investment)
Typically, stocks will return a far lower return on investment than crypto would. Whilst Bitcoin has returned a 68,000x in the space of just over 10 years, stock prices will rarely see the same sorts of movements and are more likely to make 2x on investments over the course of a decade, optimistically.
From an investment perspective, this makes cryptocurrency more desirable to investors with its higher potential ROI.
Stock Market Crashes
The stock market is highly correlated to the global economy. This means that companies and stock prices will lose value if the economy crashes or performs badly. Throughout history, there have been several famous stock market crashes which saw investors lose a lot of money, the 1929 stock market crash for example.
From an investment point of view, this makes investments risky as they could lose value if the global economic state is poor.
5. Conclusion
Relatively speaking, cryptocurrencies and stocks are both solid investment types that should yield good returns over the long term.
Cryptocurrencies, with their hedge against inflation, decentralised features, high returns on investment, and emerging technologies, are extremely attractive to investors, particularly those with a high risk and high reward tolerance.
Stocks, with their low risk, high regulation, and correlation to actual business values, make investing in them more attractive to less risk-tolerant investors.
Overall, the life-changing gains that you can make from cryptocurrencies are the reason we believe they are a better investment opportunity. Sure, a solid stock portfolio can set you up for retirement, but only if you are already in a very wealthy position to begin with. Cryptocurrency investments offer an opportunity of a life-time for this willing to take the risk, and bet on the future of it in society.
