Cryptocurrency vs. Stocks: Key Differences and Insights

by Jake Wengroff

Stocks and cryptocurrencies represent dramatically different asset classes. While both assets are generally liquid — you can buy and sell them as needed, without delays — the similarities end there. Let’s have a closer look at each of these, along with the pros and cons of each.

What Are Stocks?

Stocks represent ownership in a publicly traded company. Each share of stock represents a percentage of ownership in a company. Investors receive this ownership in proportion to the number of shares that a company has issued.

An investor can make money by selling their stock shares to other investors. This is known as capital gains, the difference between what you paid for the asset and what you get from selling it. Beyond that, the benefits from owning stock depend entirely on the individual company involved. Stocks can also return value to investors by paying dividends, or by providing voting rights, though this is usually reserved for large institutional investors who own greater portions.

Why stock prices rise and fall: A stock price moves as investors assess, and then act (i.e., buy or sell shares) based on what they perceive to be the current and future financial performance of the company. While investors may become overly optimistic about the stock in the short term, the stock price ultimately depends on the company’s ability to grow its profits over the long term.

What Are Cryptocurrencies?

A cryptocurrency has no physical component but rather exists only as entries in an online ledger recording ownership, known as the blockchain. The individual unit of a cryptocurrency is called a token, in the same way that the individual unit of a stock is called a share.

Why cryptocurrency values rise and fall: Because cryptocurrency is not backed by assets (such as a company or the U.S. government), the only thing moving crypto prices is investor speculation. As sentiments change, prices change, often dramatically. As such, the price of a unit of cryptocurrency is driven largely by the hope that someone will buy it for a higher price in the future.

Pros and Cons of Investing in Cryptocurrency vs. Stocks

Let’s have a look at the benefits as well as the risks of investing in crypto and stocks.

Pros of investing in cryptocurrency:

  • Hedge against inflation of fiat currency: For some investors, one of the biggest appeals of cryptocurrencies is their decentralized nature. Because crypto is not controlled by central banks or governments that print money and thereby generate inflation, crypto can serve as a hedge against fiat currencies like the US Dollar or the Euro. 
  • Potential for outsized gains: The dramatic rises in cryptocurrency prices are the main reason that attracts investors to the asset class. Of course, there is also significant risk when prices drop. 
  • Wider interest, not just from individuals: There seems to be a growing interest in cryptocurrencies from groups other than individual investors, such as companies and even governments. Tesla holds Bitcoin on its balance sheet and briefly accepted the digital currency as payment before reversing course. El Salvador adopted Bitcoin as legal tender in 2021, though the International Monetary Fund has urged the country to reverse its decision. 

Cons of investing in cryptocurrency:

  • Extreme volatility: The potential for outsized gains mentioned above can also be a risk, as the price volatility of crypto is widely known. Without the backing of a company or government, there is no intrinsic value of crypto and so prices are determined by the whims of traders. 
  • Subject to theft or fraud: While the blockchain cannot be hacked, the underlying wallets and exchanges are subject to compromise. Cybercriminals especially target such platforms because once they obtain the private key, they become the rightful owner of the crypto. 
  • Regulatory risks: While El Salvador has embraced Bitcoin, many governments are much more skeptical about cryptocurrencies. China has banned them altogether and other countries could follow suit.

Pros of investing in stocks:

  • Long history of solid returns: Stocks have a long track record of producing solid investment returns, with the S&P 500 returning about 10 percent over the long term. Stocks have traditionally been safe to hold over long periods of time.
  • Accessible: With many online brokers cutting trading fees to zero, it’s easy and cost-effective to invest in stocks. You can invest in individual stocks or choose to purchase a diversified portfolio of stocks, selected by experienced managers, through an index fund. 
  • Stronger regulation: Stock exchanges, brokers and companies are all heavily regulated through various government agencies, including the U.S. Securities and Exchange Commission.

Cons of investing in stocks:

  • Volatility: As cited above, stocks offer solid returns — but generally only over the long term. When held for short periods of time, they can be quite volatile. 
  • Thinly traded: Some stocks, especially those for microcap or foreign companies, might be thinly traded. This means that you might not get the best price — or even be able to execute a transaction — when you want to buy or sell. 
  • Lower potential for extreme gains: Broad stock indexes like the S&P 500 likely have less potential for the extreme gains that can sometimes be found among cryptocurrencies. While stocks have returned about 10 percent over the long term, it’s not uncommon for some cryptocurrencies to move 10 percent in a single day.

Added Protection for Your Crypto Assets

Accessing and transferring crypto between different wallets, platforms and exchanges can be risky. While it’s difficult for the blockchain or ledger to be hacked, the platforms on which crypto transactions take place can be subject to a breach. Once a cybercriminal obtains crypto’s private key, that criminal becomes the rightful owner. 

The industry needs market-driven solutions that can keep up with the ever-complex marketplace of crypto assets. TransitNet is creating the industry’s first third-party title registry that demonstrates proof of ownership of crypto assets, to add a layer of protection for investors in digital currencies and other crypto assets.  

Join the forefront of the new crypto infrastructure. Request an exclusive registration for TransitNet’s title registry when it launches today.

Disclaimer: This article does not constitute financial advice and may not be applicable to certain situations. Please seek advice from a licensed financial advisor regarding investing and crypto portfolio allocation.

Jake Wengroff writes about technology and financial services. A former technology reporter for CBS Radio, he covers such topics as security, mobility, e-commerce and the Internet of Things.


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