Cryptocurrencies have disrupted the global financial system and slowly inching towards becoming a mainstream asset class. In the last few months, the value of all cryptocurrencies has swelled to more than $3 trillion, showcasing an increased level of confidence among users for the asset class.
This has resulted in people actively investing and trading in cryptocurrencies alongside stocks. It is helping them to take advantage of both worlds- traditional and digital to create wealth.
For beginners, it’s a bit difficult to differentiate between the dynamics of the crypto market and the stock market. Therefore, in this article, we will focus on that.
And, at the end of this article, there are two bonuses for you, a few tips on how to succeed in crypto investing and what investing in meme coins is like.
But, before looking at the differences between the two forms of market, let’s look at some of the similarities.
Similarities Between Crypto Market and Stock Market
Cryptocurrencies are traded like stocks: Yes, you heard that right. Buying and selling cryptos is similar to stock trading on crypto exchanges. You can initiate intraday trade, positional trade, swing trade, and go for long-term investing as per your investing preferences.
Order types: You can place your trades through the market, limit, and stop-loss orders for all your crypto trades.
Technical analysis: The rules of technical analysis are similar for cryptocurrencies, and one can use them extensively to strategise their trades, just like stock trading.
Difference Between Crypto Market and Stock Market
Cryptocurrencies and stocks are two different asset classes with very different functionality. To be successful in crypto investing, you need to understand the difference between both asset classes.
Utility and Ownership Benefits
Stock or equity represents a percentage stake of an asset or a company. And, the person who owns the stock is entitled to certain benefits such as voting rights in managerial decisions and dividends.
For companies, their stock price reflects their real valuation as per the current market conditions.
On the other hand, cryptocurrencies are a form of digital currency, which acts as a medium of exchange. Cryptocurrencies don’t offer any ownership benefits as stocks offer. There are different types of cryptocurrencies; some are used for sending money in a P2P fashion (Bitcoin, Litecoin), while some are used as a utility token to participate in blockchain activities, like for executing smart contracts (Ethereum, Solana, Binance Token).
The country’s security market regulatory authority highly regulates the stock market. For example, the stock market is regulated by SEBI (Securities Exchange Board of India) in India. Also, the companies need to make all disclosures like quarterly earnings reports, key management decisions in a timely fashion to stock exchanges to keep the process transparent.
The crypto market is not legally regulated but is self-regulated by exchanges to maintain the highest operations efficiency and security standards.
The stocks are issued through a process called Initial Public Offering or IPO. Before issuing shares through IPO, the company needs approval from the market regulator. It’s a very long process and can take 3 to 6 months to get the stocks listed on the stock exchange.
For cryptocurrencies, the issuance process is a bit simple and is issued through processes like Initial Coin Offering (ICOs) or through direct exchange listing by the crypto project. The process doesn’t require any approval from a central authority, and the exchanges keep the right to list or delist the crypto token based on its performance and fundamentals.
Good and stable exchanges prefer listing only those coins with strong fundamentals and have strong growth potential.
The stock market is functional for limited hours a day and operates only five days a week. And, the market is also closed on national and public holidays. For example, Indian stock exchanges like Nifty and Sensex operate from 9 AM to 3:30 PM from Monday to Friday.
Whereas the cryptocurrency market is operational 24*7 and 365 days. The market never closes, which makes it unique and lets you take advantage of changing market conditions at any time of the day.
Factors Affecting the Price
The stock price is affected by multiple factors like macroeconomic conditions, the company’s financial performance, project execution capability, future growth prospects, volatility in the market, and the supply and demand of the stock in the market. To successfully predict the stock price, one needs to consider all the factors.
However, determining cryptocurrency’s real value is complex as no financials are involved. All the values of cryptocurrencies are subjective and are primarily determined by the supply and demand metrics of the coin. Also, factors like improvement in the coin’s technical specification, leading to increased mainstream adoption, will affect the cryptocurrency’s price.
The stocks are traded against the fiat currency of their respective country. For example, stocks issued in India are only paired against INR and USD for stocks issued in the United States.
On the other hand, cryptocurrencies are primarily valued in USD since it is a global reserve currency and is accepted worldwide. But, crypto exchanges offer the exchange of cryptocurrencies in local fiat currency based on their operating countries. For example, Coinswitch Kuber offers trading in INR for all cryptocurrencies listed on the platform.
Investor Safeguard Mechanism
As the stock market is regulated, the risk management systems help safeguard investors’ interest in the market. So, when the market showcases extreme volatility, for example, 5 to 10% swings in stock price, trading halts for that stock for some time. This helps cool down the investors’ nerves and bring stability to the market.
Speaking of the cryptocurrency market, since it is an unregulated market, there is no safeguard mechanism in place for investors. The only safeguard mechanism is awareness and knowledge of the cryptocurrency market, which will prevent you from registering severe losses.
Tips to Succeed in the Cryptocurrency Market
As promised, here are a few tips on succeeding in the cryptocurrency market.
Have a clear objective of what you want to achieve from cryptocurrency investing
Before investing, know inside out of the cryptocurrency you want to invest in
Don’t let emotions like FOMO drive your investment decisions
Know your risk profile and invest accordingly. Start small in the initial days and pace your investments as you get comfortable with the asset class
Do paper trading or demo trading to improve your success rate in trading
What Investing in Memecoins is Like?
Since we are comparing the stock and cryptocurrency markets, it’s better to discuss investing in memecoins here.
Memecoins are similar to penny stocks. Yes, you heard it right.
What are penny stocks? Any stocks that trade in single-digit or below ₹10 are referred to as penny stock. The fundamentals of such stocks are terrible and are not preferred for long term investing.
The other thing is, penny stocks are heavily operator driven, meaning, since they are priced very little, operators can move the price in their favour by giving huge buy or sell orders. The stocks are locked either in the upper or lower circuits on most days. Therefore, for small retail investors, it becomes difficult to exit the stock as everything happens in just a few seconds before they stop trading for the day. In other words, penny stocks are a trap for small retail investors.
Memecoins also don’t have strong fundamentals, and the sharks heavily influence their prices in the market. For instance, you can see that how easily Dogecoin and Shiba Inu prices get influenced by Twitter influencers.
Therefore, if you are investing in memecoins, never be fully invested and book profits whenever there is.
FAQs on Crypto vs Stock Market
Is cryptocurrency and the stock market the same?
No, the cryptocurrency and the stock market is very different forms of market, and the only similarity they share is the buying and selling process.
Is it better to buy crypto or stock?
Both are very different asset classes and serve different purposes. Cryptocurrency is a highly volatile, unregulated, decentralised asset class and is technology-driven.
You should invest in cryptocurrencies as per your risk appetite and fits your investment objective. Cryptocurrencies are a futuristic asset class, and including them in your investment portfolio in a small percentage can result in good returns over the long term.
Does the Crypto market close like the stock market?
No, as cryptocurrencies are a global and decentralised asset class, they are traded 24*7 and 365 days a year.