Crypto vs stocks: the ultimate guide to which asset is right for you

Cryptocurrencies and stocks are two different types of asset classes for traders to choose from. Each has its own characteristics and fundamentals that traders must study and understand before committing their funds. 

In this article, we’ll explore how crypto and stocks differ to help you decide which option is better for you. 

Understanding stocks

A stock represents ownership of shares in a real-world business. When you purchase a stock, you’re buying a small piece of the company. With enough shares, you get the right to participate in the company’s shareholder meetings and have a voice in guiding the future of the company. The value of a share is backed by the value of the company. 

Stocks are usually issued by private companies as a way of raising money. Private companies go through an Initial Public Offering (IPO) when they go public. Once public, the shares are tradable on stock exchanges such as the New York Stock Exchange (NYSE) or Nasdaq. 

The price of the stock changes every day and is decided by the market. Factors influencing a stock's price include the company's performance, market sentiment, quarterly reports, and other factors. If traders feel that the company's future value is much higher than what it's trading at today, they typically buy up more shares, causing the stock price to rise. 

Stocks are a major component for most traders in their portfolios. However, they aren't always accessible because they’re heavily regulated. 

Understanding crypto

Cryptocurrencies are also tradable on exchanges like stocks. However, the similarities end there. Bitcoin was created by an individual or individuals who went by the pseudonym Satoshi Nakamoto. The cryptocurrency was born from the 2008 banking crisis and was intended to stand out from stocks and fiat currencies as a separate asset class. 

Cryptocurrencies don't represent a company and aren't backed by real-world assets. Instead, they're backed by the blockchain. Cryptocurrencies such as Bitcoin and Ethereum create value by facilitating economic activity underpinned by the blockchain. 

The Bitcoin network allows for the seamless transfer of Bitcoin on the blockchain, backed by millions of miners who keep the network secure. Bitcoin’s value comes from its scarcity and its security without an intermediary. Similarly, Ethereum’s value comes from its ability to facilitate applications using smart contracts. 

The value of any cryptocurrency is influenced by its tokenomics, supply, and use case. Cryptocurrencies are truly decentralized, making it accessible to everyone. It's one of the few asset classes where institutional and individual traders have equal opportunities. 

Pros of stocks

• Mature markets: Stock markets have been around for centuries. Therefore, the markets are very mature and unforeseen events are rare. 

• Well regulated: With the mature state of the stock market, it's also well regulated. All publicly traded companies are bound to certain laws and regulations they must follow, making it safer for traders. 

• Backed by the company’s value: Stocks represent shares in a company and therefore have a simpler value proposition. 

• Dividends: Some stocks pay out dividends, providing income for traders without selling their stocks. 

Cons of stocks

• Black swan events are still possible: Just because stock markets have been around for centuries doesn't mean they’re always safe. Historically, stock markets have experienced major crashes due to various factors. 

• Not all stock markets are mature: While stocks have been around for a long time, it isn't true for all individual markets. Some countries have weak markets that are prone to manipulation and flash crashes. 

• Lower potential for gains: There's little opportunity for the large gains sometimes seen in the cryptocurrency market. 

• Not accessible to everyone: Stock markets aren't accessible to everyone. For example, institutional traders have access to additional opportunities that aren't available to individuals. These privileges include investing in a company before it goes public. Only accredited traders with a history of high performance have access to all opportunities. 

• Trading hours: Stock markets are open to traders for a limited number of hours on business days. They’re shut down on the weekends. 

Where to trade stocks?

It’s wise to consider the following factors when choosing a platform to trade stocks.

• Exchange fees: Stock exchanges often charge significant trading fees. This includes a fee on the trading volume, a flat trading fee, and other hidden fees. It's important to investigate ‌exchange fees before trading stocks. 

• Available stocks: Most major companies are listed on multiple exchanges. However, if you want to buy a specific company’s stock, make sure they're listed on the exchange. Things get more complicated if you want to trade stocks listed in other countries. 

• Accessible platforms: Choose an exchange that’s easily accessible on multiple platforms so you can check your trades from anywhere. 

With the above in mind, be sure to choose an exchange that suits your needs and is available in your country. 

Pros of cryptocurrencies

• Potential for higher gains: Cryptocurrencies offer a level playing field with the potential for higher gains. Cryptocurrencies have gained multiple-fold over the years, with more room to grow. 

• Hedge against the cash system: Cryptocurrencies stand as a hedge against the cash system, which includes currencies, stocks, and most traditional assets. During instability in traditional markets, cryptocurrencies have shown to be resilient and are always backed by the blockchain. With their decentralized nature, digital assets can't be manipulated or controlled by centralized banks. For example, more Bitcoins can't be created on a whim. 

• Accessible to everyone: Unlike stocks, cryptocurrencies are accessible to everyone. Anyone with an active internet connection can buy and sell cryptocurrencies. And, both institutions and individuals have access to the same markets and the same opportunities. 

• No trading hours: Cryptocurrency markets are extremely efficient and operate 24 hours a day, seven days a week without any restrictions. 

Cons of cryptocurrencies

• Emerging markets: Cryptocurrency exchanges have been around‌ for less than 20 years. Therefore, regulations aren't always clear, and ‌markets often have less oversight. 

• Higher volatility: With the potential for higher gains, cryptocurrency markets also have higher volatility. However, keep in mind that the potential for higher losses is just as high as the gains. 

• Security risks: With cryptocurrencies, you're responsible for your own security if you choose to self-custody your assets. And, it's often difficult to recover stolen funds should you fall victim to a bad actor. . 

Where to trade cryptocurrencies?

With cryptocurrencies, there’s a wide variety of exchanges to choose from. 

We recommend OKX as a safe exchange to buy and sell Bitcoin or other cryptocurrencies at your desired price. You can set up limit buy orders in the spot market for popular trading pairs such as BTC/USDT, BTC/DAI, and BTC/USDC. OKX also offers advanced trading tools, such as futures with up to 100x leverage. 

As a leading cryptocurrency exchange, OKX employs world-class security measures to help users worldwide to buy and sell digital assets safely and seamlessly. Visit our security of funds and proof of reserves page for more details. 

Tax considerations

Taxes on cryptocurrencies and stocks are subject to local regulations. With stocks, the laws are clear. However, with cryptocurrencies, tax laws can be ambiguous in some countries. So, it's important to consult with a tax expert before opening any positions. 

In most instances, selling cryptocurrencies or stocks for a gain incurs a capital gains tax. Similarly, losses can also be reported to offset ‌capital gains. However, different rules apply while swapping one cryptocurrency for another or when gains are made through mining. 

It's important to keep detailed records of every trade so you can fully understand your tax liabilities. 

Crypto vs stocks: key differences

The final word

With the price of cryptocurrencies soaring over the last few years, it's been impossible for traders to turn a blind eye. Most traders recommend exposure to cryptocurrencies as an alternate asset class given the gains that are possible if the market is timed correctly. 

Ultimately, choosing between cryptocurrencies and stocks depends on your financial goals and risk profile. Both options offer unique opportunities but also come with their own challenges. It's important to do your own research to understand the opportunities and risks associated with each asset class and to choose the right strategy for your goals.