Crypto Vs Stocks- is a widely debated topic amongst new-age Investors. Investors and Traders today have a plethora of asset classes to choose from. Stocks, Real Estate, Gold, and Fixed Deposits are widely used as Investment vehicles. Crypto assets are the latest addition to this wide array of options.
Investment Options with High Liquidity
Liquidity is a critical lens that many Investors overlook. Retail investors have a large part of their wealth parked in Real Estate or Gold. A house is usually the most expensive purchase made by a person even though Real estate investment is accompanied by its own set of problems. High registration fee, illiquidity, and maintenance costs to name a few.
With fewer options in Real Estate Investment Trusts(REITs), modern-day investors are looking for investment options with high liquidity and strong use cases.
The 2020-21 Bull run in Stocks and Cryptos led to a massive number of retail investors venturing into the market. Both Stocks and Cryptos present a relatively free market ( a large number of buyers and sellers) where most orders are settled in less than two days.
Today let’s discuss the intricacies of Stocks and Cryptos and what opportunities each of them presents to a Retail Investor.
The table below shows the percentage population of USA, UK, Australia, Singapore, and India who have traded, or used Stocks or Crypto assets as on 2022.
| USA | UK | Australia | Singapore | India | |
| Stocks | 58% | 33% | 49% | 52% | 2% |
| Crypto Assets | 16% | 5% | 28.8% | 9.4% | 7.3% |
Pros and Cons of Stocks
Pros of Stock Investing:
- Part of a Business: A stock is an ownership of a business. Though there isn’t a direct relationship between the Financial metrics of a company and the stock price, it is safe to say that investors make decisions based on Financial metrics, everyday happenings, and macro-economic indicators which in turn influence the stock price.
- Liquidity: Buy and sell orders can be placed instantly for stocks and are usually settled in less than two days.
- Dividend Payouts: Dividends are the payouts companies give to shareholders. Payouts are at the discretion of the management running the organisation. Payouts come from the free cash flow a business generates.
Cons of Stock Investing:
- Volatility: Stock prices move up and down. Technical Analysis is a difficult domain to gain expertise in, and an investor should always be wary of the swings that can occur in the market. Timing the market is a skill that can be mastered with research and a comprehensive understanding of all indicators. Bear traps and Bull traps often present a distorted picture of the market mood and can lead to investors making the wrong decisions.
- Delisting of Companies: Stock market indices from all over the world have a high churn rate. Decreasing lifespans of companies indicate competition and market disruption. Companies run out of business due to competition and heavy losses. Delisting of companies can lead to large-scale capital erosion.
Pros and Cons of Crypto
Pros of Crypto Investing:
- Decentralisation: Blockchain powers Crypto assets to have immutable transaction records and it decentralises ownership. Crypto assets are not owned by organisations, but are owned by a community. There is no central authority that can change the fundamentals of a decentralised coin.
- Coins with Finite Supply: Bitcoin, Binance Coin, and a few other coins have a finite supply. When the supply of a coin is finite, its price changes only by changing demand. On the other hand, Fiat currencies are not backed by commodities and can be printed by Central Banks. An increase in supply with the same demand leads to value erosion and cryptos with finite supply are resistant to that.
- Future Applications: As Decentralised finance ( DeFi) and Web 3.0 pick up the pace, crypto assets will have more use cases. Hence they make a good bet for future wealth creation opportunities.
- Stronger Bear and Bull Momentums: Wider support and resistance lines allow traders to buy low and sell high. But the volatility also comes with its risks, and investors should be aware of the same.
Cons of Crypto Investing:
- Volatility: Cryptos are a relatively new asset class and the majority of investors are still figuring out the use cases. These factors add to the volatile price movements. While a volatile market presents an opportunity to amass wealth, they are equally risky in the short term. So adequate due diligence is a must before decisions are made.
- Compliance: As the laws on crypto assets have been framed recently by many governments, investors should be well aware of the new regulations. Many governments around the world are yet to frame guidelines for Crypto trading. Investors should strictly comply with the tax norms of the country where they are trading.
Read About: Crypto Investing vs Crypto Trading
Final Verdict
Crypto assets and Stocks are not mutually exclusive. They are different asset classes that present great opportunities for long-term wealth creation. An investor should conduct thorough due diligence before making decisions to buy or sell. Risk appetite is also a key determinant when choosing an asset class.
Contrary to the popular belief of “Greater the Risk – Greater the Reward”, It is important to understand that rewards are directly proportional to the effort an investor is willing to put into researching and making sound decisions at the right time.
