Investing In Crypto vs. Stocks: Everything to Know For 2022
There are plenty of reasons why stocks are such a popular investment. They’re easy to buy and sell, have high potential rewards, and it’s fairly easy to minimize your risk. But, the world of cryptocurrency has also hit several major milestones lately. El Salvador started recognizing Bitcoin as legal tender. Several major cryptocurrency companies went public. And, on top of that, some of the world’s largest financial institutions are exploring crypto. So, which asset is the best place to put your money in 2022? Let’s take a look at a breakdown of investing in crypto vs. stocks.
Crypto vs. Stocks
Stocks are a representation of ownership in a company. As a company grows and gets more successful, the price of its stock should increase in value over time. By owning shares in a company, your net worth will grow alongside the company.
On top of that, owning shares of a company’s stock makes you eligible to receive dividends if the company decides to pay them. It also gives you voting rights on certain issues.
Pros of stock investing:
- Stocks can increase in value over time as well as produce income (dividends).
- It’s easy to diversify your investments with index funds or exchange-traded funds (ETFs).
- Stocks are a common investment and there are lots of educational resources on investing in them.
Cons of stocks:
- Lack of control: most investors have little influence on the movement of a stock’s price.
Keep reading for more info on crypto vs. stocks.
Cryptocurrencies are digital currencies that exist entirely online. Instead of using a bank, cryptocurrency relies on encryption to verify transactions. They are treated as both a medium of exchange as well as an investment. The first cryptocurrency, Bitcoin, was created in 2009 but today there are over 10,000 cryptos.
Pros of crypto investing:
- There is the potential for very large gains.
- You don’t have to rely on a financial middleman (bank, government, etc).
Cons of crypto:
- Crypto prices are very volatile. This means that you can make money quickly. However, it also means you can lose money quickly.
Investing in Stocks
Stocks are one of the most common investments out there. Popular investment tools like 401(k)s, mutual funds and Individual Retirement Accounts are all stock-based. There are a few main reasons stocks are so popular.
First, they’re very liquid. This means that they can be bought and sold quickly. These days, you can open up an investment account and start investing for as little as $5. Second, it’s very easy to adjust your stock investing strategy based on your risk tolerance. For example, consider the following three risk profiles:
- Does not want to take big risks: There are plenty of safe ways to invest in stocks. For example, this investor could open up an IRA or similar type of retirement plan. This lets them invest money very slowly over a long period of time.
- Comfortable taking small risks: This investor could invest mainly in index funds, while occasionally buying individual stocks. The bulk of their money would be invested safely in index funds. However, by buying the occasional stock, they still have the opportunity to potentially hit a home run.
- Wants to take big risks: This investor could buy risky investments like stock options in hopes of maximizing their gains. They could also borrow money (leverage) to give themselves more buying power.
There are also plenty of different strategies that you can use to invest in stocks. For example, you can invest in the world’s biggest companies, medium-sized companies, or startups. You can also invest in emerging markets such as electric vehicles. There is practically an unlimited number of ways to customize and tailor your stock portfolio.
Now that we’ve touched on the basics of stocks, keep reading to learn more on crypto vs. stocks.
Investing in Crypto
Cryptocurrencies are digital currencies that exist entirely online. They use blockchain technology to verify transactions, which eliminates the need for a bank. Cryptos are used as both a medium of exchange (currency) as well as an investment vehicle. When it comes to crypto vs. stocks, there is one main difference:
- Crypto is not regulated: When you buy crypto, it is not controlled by a bank or governments. In general, this gives you more privacy over your crypto holdings. However, less regulation also means more risk. If something happens to your crypto, there is no one to appeal to.
Since it was founded in 2009, crypto has been seen as a fringe, high-risk investment. However, it has definitely started to become more mainstream in recent years. If you want to get started investing in crypto, there are a few different strategies you can use:
- Day trading: This involves buying/selling different cryptos every day in hopes of making a profit. One strategy for day trading is crypto arbitrage.
- Long-term investing: This strategy is as simple as buying crypto and waiting for its price to increase over time.
- Defi investing: There is actually much more to the cryptocurrency space than just crypto. You can invest in new defi assets like includes NFTs and dApps.
- Combine crypto vs. stocks: You can also buy stock in publicly-traded cryptocurrency companies. For example, Coinbase and MicroStrategy.
If you’re hesitant to put your money into crypto, there are also plenty of ways that you can earn free crypto. This minimizes the risk while introducing you to this new asset class.
Crypto vs. Stocks: Which One is Right For You?
There are definitely a lot of moving pieces when it comes to comparing crypto vs. stocks. However, the end goal is actually very simple. As an investor, you want to buy assets that will increase in value over time. To do this successfully, you have to balance your risk with your potential reward. If you buy assets that are too risky, you could lose more money than you make. But, if you don’t take enough ris,k then you might not earn much money at all. The key is to find a sweet spot right in the middle.
Measuring Risk vs. Reward
Before you start investing in crypto or stocks, ask yourself the following question: What are my financial goals and my risk tolerance for achieving them?
Basically, what are you trying to achieve by investing? And, how much risk are your comfortable taking to achieve them?
If you don’t mind taking financial risks then you should explore crypto investing. In general, the defi space has more potential for higher returns. Of course, this also means there is a higher risk of losing money. Or, if you want to pursue stocks, then you can use stock options or leverage to amplify your stock returns.
If don’t want to put your money at risk then you should consider investing in diversified stock market funds. This includes things like index funds, 401(k)s and IRAs. These tools will help minimize your risk while still growing in value over time.
The most important thing to remember is that investing is an individual decision. This means that there is no “right” answer. What’s “right” for you will depend on your financial goals and risk tolerance. Since these are unique to you, the best investment for you will be different than the best investment for your friends and family.
Please remember that I’m not a financial advisor and am just offering my own research and commentary. As usual, please base all investment decisions on your own due diligence. With that in mind, I hope that you’ve enjoyed learning about the differences between investing in crypto vs. stocks!
About Teddy Stavetski
A University of Miami grad, Teddy studied marketing and finance while also playing four years on the football team. He’s always had a passion for business and used his experience from a few personal projects to become one of the top-rated business writers on Fiverr.com. When he’s not hammering words onto paper, you can find him hammering notes on the piano or traveling to some place random.