Crypto vs. Share Market: Which is Best for Your Investment Portfolio

Last Updated on October 28, 2021

#1 Crypto or Cryptocurrency?

Perhaps you have heard the word ‘cryptocurrency’, but you are still wondering if it is indeed considered as a real currency. Or perhaps, you already know what cryptocurrency means, but you are still searching for more information about cryptocurrency trading.

To give you an idea of what cryptocurrency really is, think about this: who says that only the government decides how monetary policies should be implemented? It turns out that there are some people who also want to control how these policies should be done. These people are the developers and users of cryptocurrencies. They realize that there has to be a better system than fiat money because this method does not limit inflation rates unlike before.

Crypto developers also realized that the traditional system of earning money through interest rates is not efficient. This is why they created cryptocurrencies, which will no longer require a bank or centralized authority to oversee how our transactions are done.

#2 Difference Between Crypto and Share Market

Basically, the share market represents interests in a company. Crypto has no real interest to speak of except for speculative purposes. That is its big downfall because there’s no inherent ‘value’ to limit fluctuations in the price of them like every other currency and commodity pegged against something physical and tangible (eg: Gold). The only ‘interest’ we get out of it is volatility risk and if we can cash out before another crash or panic run on bitcoin etc. For example, when China banned bitcoin trading earlier this year, people were queuing up outside exchanges to sell off their coins at whatever value they could -be $1000 or $100 – just to get their money out.

Also, you can’t buy shares in bitcoin even if you wanted to. If you could, it would be illegal unless the ASIC registers were changed so that this was possible (Which they won’t). Basically, there is no legal reason why any company providing share market services can not add ‘crypto’ markets without breaking any current laws. The actual differences are stark and glaringly obvious once you understand the two concepts which are totally different entities despite sharing some similarities like volatility risk (which applies to all investments).

As a buyer of shares, you don’t give your money to anyone. You exchange it for an IOU from the company which is legally required to pay you dividends from its profits in accordance with Australian law and ASX rules/regulations. As a holder of bitcoins, however, your funds are held by a wallet provider – NOT a company – and they may or may not pay dividends (if any). In addition, they can take their sweet time about giving them back to you too if they go bust. For this reason, most people keep their crypto on exchanges such as Poloniex so that they have instant access if needed at least until better wallet options become available.

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The big difference here involves intrinsic value. That is, a share has inherent value because it represents the interest of an actual earning company. Crypto does not, and can be created from thin air by a lunatic with a computer who thinks they have found a way to create money without working for it (or creating anything of tangible value like products or services).

In order for people to have access to their cryptocurrencies’ funds, all they have to do is create a digital wallet account where these cryptocurrencies can be stored safely. Just like a regular wallet, a cryptocurrency wallet contains public and private keys that facilitate transaction processing with ease. In fact, you can even use your smartphone as a hardware device for storing your bitcoins securely.

As of this writing, there are already around 12 million Bitcoin wallets recorded throughout the world ( source ), making it one of the most popular cryptocurrencies in existence.

#3 Why To Invest in Cryptocurrencies

Now that you know how cryptocurrencies work, the next question that you should ask yourself is if it would be wise for you to invest in altcoins (crypto coins). This will also depend on your investment style. Remember that cryptocurrency investing may not be for everyone because there are still some financial risks involved with this type of investment.

For instance, Bitcoin experienced a drop by 40% after Silk Road, an online black market owned by Ross Ulbricht was shut down back in October 2013 ( source ). Other instances include security breaches like Mt. Gox bankruptcy, Bitfinex hackings, and the infamous DAO hack to name a few.

However, there are also huge returns of investment (ROIs) that you can get from cryptocurrencies if you put your money in the right currencies at the right time. For instance, Bitcoin increased by 70 times its value within 5 years since it started ( source ). As of this writing, one Bitcoin is equivalent to $3,867.42 USD ( source ).

Then again, there are also cases wherein cryptocurrencies’ value dropped within just a few hours.

The truth is that the future of cryptocurrencies remains uncertain because there are still many things that we don’t know about cryptocurrencies up to this day. This means that it is more or less a gamble when you invest in any coins.

The decentralized nature of cryptocurrencies makes them attractive to investors because no one can really control their market value. Cryptocurrencies are also utilized by people who would like to remain anonymous while they conduct their transactions, which is not feasible with fiat money.

Aside from that, you should also take note that there are literally hundreds of other types of cryptocurrency other than Bitcoin, which are collectively called altcoins. Some examples include Litecoin, Dogecoin, Peercoin, Ethereum, Dash, and more.

While this list continues to grow every day, some people fear that cryptocurrencies’ volatile market trends may lead them astray when they make an investment decision. Before you do anything else regarding your investments in the crypto market, it is best to take your time and conduct your own thorough research regarding cryptocurrencies.

#4 Benefits of Investing in Crypto over Shares

As cryptocurrencies are new and burgeoning, they do not yet have the market share of fiat currencies. This allows for larger gains on investments in comparison to traditional equities like shares Cryptocurrencies are legal tender.

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Cryptocurrency investments can be made anonymously – which is attractive to those wishing to escape government regulation or capital controls.

Decentralization means that cryptocurrency value cannot be manipulated unless consensus is found among the majority of networks users. For example, USD has no intrinsic value but its supply can be increased by simply printing more money (to create inflation) whereas crypto price increases through engineering scarcity – eg: bitcoin halving every 4 years.

Purchasing cryptocurrencies is easier than purchasing stocks /shares because brokerages are chargeless for fees when compared to traditional exchanges which can cost up to $40/trade.

With cryptocurrency, there is no need to wait until the end of the year in order to claim your profits. Instead, you can sell off at any point during the year and still be required to pay tax on your gains.

#5 How to Take Advantage of Investing in Crypto VS Shares

If you are planning to invest but are not sure where to start, it is always best to continue your research and wait for the right time before jumping onto the bandwagon of cryptocurrencies. Although they offer greater rewards, their volatile nature makes them riskier than shares/shares whose prices remain relatively stable over long periods of time.

On the other hand, if you believe that crypto is here to stay then I would suggest investing with caution (ie: don’t invest more than 10% of your portfolio into cryptocurrencies) because even though there are lots of opportunities that come with high volatility, they can also tank very quickly. This has been seen many times in countries like China who attempted regulation through banning exchanges for trading bitcoins only resulting in people moving businesses elsewhere.

Two years ago, when the price of bitcoin reached over $1000 for the first time, many “dumb” money was invested into the currency only to have it drop down to $300 within a few months which resulted in lots of people losing money because they were seeing dollar signs at the prospect of becoming an overnight millionaire. As you can see, it’s best not to enter any investment blindly especially if you are new to finance/investing.

Cryptocurrencies are certainly interesting currencies with lots of potentials but it is important not to get carried away by all the hype surrounding them. With bitcoin almost reaching 10 years since its inception, speculators believe that 2018 could be another big year with prices potentially increasing exponentially though others disagree. At this stage, bitcoin is a relatively stable currency with a market cap of over $200 billion but its price is still trending downwards from the start of this year.

In contrast, shares have been around for hundreds of years and are almost considered commodities in themselves because there is an active market for buying and selling them. Not only that, but the prices also move upwards depending on how well a company can perform against analysts ‘ estimates which ultimately translates into “profit” or value to shareholders. So unlike crypto where their prices swing based on sentiment, the underlying fundamentals behind companies should determine whether they should be bought or sold. Finally, always remember that your capital remains at risk when dealing with unregulated entities like crypto exchanges because there’s nothing stopping people from running away with your funds.

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#6 Important Tips About Investing In Crypto vs Shares

  • Shares are much less volatile than cryptocurrencies.
  • Investing in shares is much safer because there are governing bodies to oversee their operations vs crypto which is mostly unregulated.
  • Shares have been around for hundreds of years where their prices move upwards depending on how well a company can perform against analysts ‘ estimates which ultimately translates into “profit” or value to shareholders.
  • If you believe that cryptocurrencies are the future, it is best not to invest all your money in them but rather keep some in reserve for when things go south.
  • As with any investment, always remember that risk comes first before reward.
  • Bitcoin’s volatility has dropped significantly over time which makes it an ideal store of value whilst other cryptocurrencies are still much less mature in comparison.
  • Currently, there is no ruling organization that oversees cryptocurrencies or regulates them therefore participants must be fully aware of what they are doing when investing in them.
  • Cryptocurrencies have a market cap of $258 billion compared to shares/shares whose market cap is around $69 trillion (ie: shares are worth much more than cryptos).
  • The main difference between cryptos vs shares is that cryptos rely heavily upon sentiment/hype whereas companies’ share prices are governed by the company’s performance and/or other economic factors such as interest rates that determine inflation etc.
  • So if you plan on day trading/buying/selling speculatively then you should consider doing so through a regulated entity like an online broker or forex broker Trustdefender does not recommend investing in any cryptocurrency without fully understanding how it works and what its plans are within the next 5 years. They should also have a healthy and vibrant community backing it up.
  • Investing in companies that you believe will be around for decades is probably the safest bet as they will likely employ thousands of people which means more employment opportunities for others.
  • Keep your cryptocurrencies on cold storage i.e: hardware wallets that do not expose online architecture such as exchanges or computers. This means that any currency that is stored offline cannot be hacked by hackers who are usually after your money. Trustdefender also recommends using paper wallets where possible because then it’s basically impossible to hack into anything!
  • Do not panic sell during market downtrends especially if you’re new to crypto investing etc. Also, avoid “pump and dump” schemes because these are usually scams where people who are involved hype it up and then offload as soon as new participants jump in.
  • Be careful of ICOs as most of them are actually money laundering schemes or scams. If you’re going to invest in an ICO, try doing a thorough background check about the developer first before handing your money over.
  • Finally, keep track of market news and announcements that might affect cryptocurrency prices on a daily basis ie: regulation announcements from different countries, etc because these will likely have some effect on the price of each currency.

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