Cryptocurrency vs Stock Market in India: The Crypto market has gained a lot of attention in the recent past. Much of this attention came due to the high returns this market has offered recently.
The cryptocurrency industry is extremely volatile. Because of this, this market gets compared to the stock market. Some people tend to get confused between these two markets.
A sound investment portfolio needs to contain a diverse mix of assets. This means investors need to put money across asset classes such as stocks, bonds, real estate, commodities, etc.
In today’s era, there is more room for speculative investments. In the 1990s, there were internet stocks. Today, there is cryptocurrency. In considering cryptocurrency versus stocks, investors are required to balance comfort and risk.
People who decide to invest in cryptocurrency need to vary about wild swings in value. Though movement in stocks can also be scary at times, but not quite as wild as volatility in the cryptos.
Now, you don’t have to worry! We’ve got you covered! This article will walk you through the differences between a stock market and a crypto market, and other important details about the two. Read on!
By the end of this article, you will be able to actively participate in the discussion of both stocks and cryptocurrency.
Cryptocurrency and stocks have both similarities and differences. Investment professionals recognizing the strengths and weaknesses of these asset classes are able to use them in the same portfolio for varied reasons.
In comparison to cryptocurrency, stocks offer stability. Most investors consider stocks as a tool to build wealth and meet long-term goals.
In comparison to stocks, cryptocurrency is the riskier proposition. Even though it has a higher risk, it offers a chance to make big profits. Therefore, an investor having sound knowledge of both the asset classes can balance reward and risk in his/her portfolio.
Cryptocurrency – What is it?
Cryptocurrency, a new medium of exchange, has gained significant popularity over the past decade. People who invest in cryptos argue that the future of finance is cryptocurrency.
They believe that stocks and conventional forms of currency will soon be taken over by the cryptocurrency market. Those who are against it, argue that, due to the unregulated nature of cryptocurrency, allowing it to be a full-fledged financial system will be too risky.
1. Digital Asset
Cryptocurrency is a unique sub-class of digital assets. It utilizes cryptography, which is an advanced encryption technique assuring the genuineness of crypto assets by removing the chances of counterfeiting or double-spending.
Even though multiple cryptocurrencies exist, Bitcoin was the first and is the most widely held. Some other cryptocurrencies include Ethereum, Litecoin, PeerCoin, etc.
Volatility seems to be inhibited in cryptocurrencies. These have seen significant changes in value over short periods. In 2021, a value of one Bitcoin ranged from $28,383 to $65,000+.
Cryptocurrencies are powered by the technology known as the blockchain. At the most basic level, a blockchain means a list of transactions that anyone can see and verify.
Blockchain combines cryptography, which is the decentralized network of computers, and the common agreement of users to track and assess transactions. Almost all cryptocurrencies, including Bitcoin and Ethereum, are protected through blockchain networks.
4. Investment Avenues
With Bitcoin prices soaring high, people might find it difficult to buy cryptocurrency. However, investors are allowed to buy fractional shares of Bitcoin for smaller amounts.
In 2021, a cryptocurrency secured a legitimacy milestone as an investment vehicle. This was when the Securities and Exchange Commission allowed the trading of an exchange-traded fund related to Bitcoin.
Quick Read: Which are the Best Cryptocurrency Apps in India?
Stock Market – What is at the core?
When reading about cryptocurrency versus stocks, investors need to remember that a stock conveys ownership of the piece of a company.
The company’s founder owns the company during the initial stages. As and when the company grows, the founder of the company has the liberty to sell ownership shares.
At a later stage, the company might decide to sell shares to more investors through IPO. This can help the company to raise money. Through this process, early investors can sell their holdings and realize a return on investment.
1. Derivation of Value
Investors tend to benefit when the stock’s value increases, which can be because of the company’s performance. More often than not, better economic conditions and higher profits and sales improve the stock’s performance.
Sometimes better outlook can improve the stock’s price. Any sort of good news can improve the stock’s performance. On the other hand, a stock might lose its value when the stock price declines.
Sometimes investors benefit from their investment if the company’s leadership team decides to pay dividends. Most of the time established companies having steady income streams pay dividends.
On the other hand, most small and early-stage companies decide to re-invest their profits and cash flows back into the business to expand their operations.
2. Centralized Regulation
The Indian stock market works under centralized regulation. The market is regulated by the Reserve Bank of India and the Securities and Exchange Board of India to prevent mismanagement and fraud.
Stocks and cryptocurrency are subject to changes in the market. However, they differ from each other in terms of volatility. Cryptocurrencies are a highly lucrative trading option.
This is because it is full of risks as the market is still in its early stages. Relatively, the stock market is stable. The stock market offers a range of trading options. Some people say that returns in the stock market are easier to foresee.
4. Factors Behind the Move
Both, the stock market and the crypto market, are controlled by the factors of demand and supply. These however differ for each of them. The stock market is moved by the company’s news, economic situations, monetary policies, political news, legal news, etc.
The crypto market gets fluctuated by the buzz. Recently, we have seen how some tweets from Elon Musk have moved the prices of crypto assets.
To sum up, investors don’t have to decide on one asset class i.e., between cryptocurrency and stocks. They can make investments in both these asset classes as long as they know the risk element present in each of these asset classes.
Therefore, finance professionals on manage risks and rewards are able to capitalize on the opportunity of making investments in cryptocurrency and stocks.
So, that’s all for the article on Cryptocurrency vs Stock Market in India, do let us know your views in the comment section below. Happy Investing!
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