Like many individuals that have heard about cryptocurrencies, I too first thought that the cryptocurrency hype would have vanished by now. Considering that Bitcoin was only created in 2009, more digital currencies being traded, and more countries accepting crypto payments, it seems like crypto is here to stay. Having learned more about the technology and future potential of cryptocurrencies, combined with the fear of missing out, eventually led me to start my cryptocurrency investment journey as well.
The majority of us don’t have friends who became crypto millionaires, that’s why it’s so important to prevent losing money from investing. Gathering the advice from YouTube crypto millionaires and my own experience as a beginner, here are the differences between stocks and crypto investments that crypto investors should be familiar with.
1) Supply and demand
The biggest difference between stocks and cryptocurrencies like Bitcoin, Ethereum, Litecoin, Cardano, Dodge, etc. is that a crypto’s value depends strongly on supply and demand due to their market cap. Despite the risks that come with investing in cryptocurrencies there are profitable investment opportunities. Cryptocurrencies are also known as digital gold due to their individual market cap. For example, there is a current limit of 21 million Bitcoins that one can buy, value increases as demand increases because of finite supply.
With fewer current regulations on cryptocurrencies, any individual can create coins, which is why it’s important to do diligent research about future projects and the team structures of cryptocurrencies. Whereas stocks are companies that have to legally disclose financial information, crypto creators don’t have to share that detailed information with the public, which makes research about cryptocurrencies more difficult.
Looking at the history of stocks, the first trade can be dated back to the 17th century. Therefore, more information about stock volatility, including how the market reacts during financial crises and major global events, can be found, making stock predictions easier. Furthermore, index funds, like the S&P 500, allow investors to buy a single index fund while investing in multiple companies, thus reducing risks for investors.
Crypto on the other hand is less predictable, investors can pump the price easier, which can cause new beginners and also experienced investors to lose a considerable amount of their finances. However, volatility is also what draws many investors to cryptocurrencies, higher volatility allows investors to earn money faster with fewer funds. MW Tip when you are a crypto beginner, invest smaller amounts during different days/hours of the week, this way you can get a better feeling of the crypto market and minimize risk.
3) Time in the market
Regardless of what investments you make, aim to hold your investments for the long term and only invest money that you can afford to lose. As a whole, the global stock market has increased in value over time, despite the ups and downs over the years in the stock market. A simple example, if you would have invested $10,000 in the S&P 500 in 1980 and kept the money until 2018, you would have over $700,000 stocks in value. Even if you would have missed the 5 best days in trading, you still would have made over $400,000 in 2018 (Nasdaq). That’s why it’s crucial to invest only money that you don’t need presently and view stock market investments like regular payments. Rather than viewing investments as expenses, view them as investment opportunities that can lead to your financial freedom.
Comparing time in the market with cryptocurrencies, we cannot look back to centuries. What we do know, however, as a whole the amount of cryptocurrencies being traded has only grown and this trend is expected for the new future, despite the volatility and crypto value corrections. Rather than looking backward, it is important to look forward, when it comes to cryptocurrencies.
Although from a historical, diversification, and legal standpoint stocks are still preferred by the majority of investors, one cannot deny the potential of cryptocurrencies, as we live in a digital age. Cryptocurrencies will be the competitive driver when it comes to technological disruptions in multiple sectors i.e. banking, real estate, and legal industries. The number of crypto projects and crypto coins will only continue to grow over the years. Additionally, the volatility and factors of supply and demand, make it possible for investors to invest smaller amounts in cryptocurrencies, while still making high gains from crypto investments.
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