Crypto and stocks may seem similar at first, but they are fundamentally different types of assets. There are key differences in terms of how they’re structured (one is digital, one has real-world value), how volatile they are (crypto’s swings can be more dramatic), how they’re stored, and more.
Crypto and stocks both have their pros and cons, and certain risks to consider. Here’s what you need to know.
Key Points
• Cryptocurrencies are digital assets, not company equity, like stocks.
• Stocks have clear regulatory oversight, while cryptocurrency regulation is limited and still evolving.
• Cryptocurrency markets are more volatile and sentiment-driven compared to earnings-influenced stock markets.
• Cryptocurrency trading is available 24/7, whereas stock trading is limited to business hours.
• Cryptocurrency value depends on network adoption, utility, and scarcity, while stock value is based on corporate performance.
Understanding What You Own
Before getting too granular in the differences between crypto and stocks, you may to solidify your understanding of what, exactly, each is.
Stocks
In the simplest terms, a stock is a share of ownership in a publicly-traded company. As a stockholder, you own part of the company.
So, when thinking about the difference between crypto and stocks, the first point to remember is that a share of stock may represent a percentage of ownership in a tangible business.
While stocks and whole sectors go in and out of fashion with investors, the stock itself still corresponds to a portion of a functioning company, with a price that’s tied to the underlying, fundamental value of that company. By contrast, cryptocurrencies are wholly digital, and that impacts their value, their real-world viability, and how they are traded.
Cryptocurrency
Cryptocurrencies are a speculative asset class that are created and stored digitally, using decentralized blockchain technology.
The main difference between crypto vs. stocks is that stocks are a share of ownership, while cryptocurrencies don’t have any intrinsic value – their value is largely determined by market sentiment, and supply and demand, which is one reason cryptocurrencies can be highly volatile.
It’s also important to know that most cryptocurrencies are not valued the way fiat currencies are. Fiat currency, like the U.S. dollar, is money that’s issued and backed by a central bank or government. Cryptocurrencies are wholly digital, and are not issued or overseen by a government, bank, or any other central authority.
And because they’re volatile, most types of cryptocurrencies aren’t currencies in the traditional sense. Their real-world value as a means of purchasing goods and services is often limited, although this is expanding as payment systems and retailers begin to accept certain cryptocurrencies, such as Bitcoin.
The value of a cryptocurrency reflects a variety of factors, including, as mentioned above, current supply and demand for that currency. In some cases, it also reflects a faith in the underlying technology that powers the currency, or a particular innovation that a certain crypto stands for.
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7 Key Differences Between Crypto and Stocks
Knowing that both crypto and stocks are two different things, there are some further, more detailed differences that are important to parse out.
Regulation
In terms of regulation, the key difference between stocks and crypto is that stocks have an established oversight apparatus, while crypto regulation is still emerging and formulating.
For stocks, there are national agencies in the United States, such as the Securities and Exchanges Commission (SEC), which oversee stocks and stock markets, and the Financial Industry Regulatory Authority (FINRA), which regulates broker-dealers. The regulation provided by these groups helps create a certain level of transparency into publicly traded companies.
By contrast, cryptocurrencies have only begun being regulated by the federal government. Though there have been some regulatory frameworks introduced recently (The GENIUS Act, for example), the regulatory apparatus isn’t as robust as it is for stocks or other securities.
In the current U.S. market, cryptocurrency regulation is a collection of rules from multiple federal agencies and state-level laws, impacting buying, selling, and holding of the crypto assets, depending on the nature and use of the crypto asset. Current regulations may not apply directly to an individual’s personal use of their self-custody wallet, but they heavily govern the exchanges, platforms, and services an individual uses to buy, sell, or custody their assets in the U.S. financial system.
Volatility and Market Risk
Both crypto and stocks are or can be volatile and are subject to market risk. But stocks are, traditionally, subject to more moderate volatility, often driven by fundamental or economic factors, whereas crypto can experience extreme swings and volatility, driven by shifts in market sentiment perhaps more than anything.
Make no mistake: There is volatility and risk involved in buying both crypto and stocks. Both assets can go up or down in value, and it’s nearly impossible to time the market to know exactly the best time to buy or sell.
While the stock market has a well-earned reputation for volatility, the broader market has tended to go up over the course of decades. Since past performance is no guarantee of future returns, and public stocks must publicly report on their finances, investors have access to several sources of information to make decisions about purchasing those securities.
On the other hand, cryptocurrency is, or traditionally has been, more likely to undergo sudden, drastic changes in value, sometimes without warning.
Those swings can lead to potentially big wins for crypto users, but it can also create large losses, including total loss, in a very short period of time. While it is possible for public companies to go bankrupt and their shares to become worthless, they’re far less likely to lose all of their value than most cryptocurrencies are.
Trading Hours and Market Access
The stock markets are usually only open during business hours in their home country, Monday through Friday, and closed on holidays on weekends. By contrast, the crypto market runs around the clock, every day of the year.
The 24/7 availability of the crypto markets may be one reason why crypto is so volatile. As decades of research on the stock market has shown, some investors often succumb to emotional impulses that can drive their behavior. Time off may help restore a sense of control and order, giving participants a chance to cool down.
What Drives Their Value
Crypto and stock values may be driven by different factors, too. Stock values may increase after a strong earnings report, for instance, while crypto values may increase due to scarcity, speculation, or adoption trends, along with other variables.
There can also be associated costs to contend with, which may also hurt demand for one or the other.
For example, every time an investor buys or sells stocks, they may need to pay transaction fees, such as commissions, that eat into their returns. Even investors who purchase assets like low-fee index mutual funds, which are essentially baskets of stocks, have to pay fees that cover the costs of running the fund.
The costs of actively managed funds, and for trading through a brokerage account, may be higher.
Note that crypto exchanges also charge fees. And there are “gas fees,” which are the costs extracted by a network for various transactions on the blockchain. These fees vary widely from one form of crypto to another.
While costs are not the end-all-be-all that affect demand, it is something that’s in the mix, and that should be taken into account when considering any stock or crypto transaction.
Market Age and History
As noted, the concept of stocks and stock-trading has a long, established history going back centuries. The rules are solidified, oversight and regulation is in place, and investors or traders generally have a good idea of how the markets work.
Crypto markets, on the other hand, are very young, having been around for only around a decade-and-a-half. Until recently, they were largely unregulated, too, and the whole crypto space has had a “wild west” feel to it. That’s quickly changing, but its short history could also mean that there’s more risk involved, which some may not be comfortable with or have the capacity to take.
Liquidity (How Easily They Are Bought and Sold)
Stocks are liquid, meaning they’re fairly easy to buy and sell. Crypto, depending on the specific crypto at hand, can have variable levels of liquidity.
For more background: Smaller markets also affect the ability to trade in and out of your investments, whether they’re stocks or cryptocurrencies. That ability to trade an asset at will without substantially affecting its price is called liquidity. Investors typically consider stocks highly liquid, since there are so many active traders in the stock market.
With cryptocurrency, on the other hand, liquidity varies quite a bit from one form of crypto to another. Bitcoin is a more liquid asset than most cryptocurrency. That means there are more buyers and sellers who want to trade if you want to get in or out of that particular cryptocurrency.
Custody: Who Holds Your Assets?
The concept of custody is also important, and differs between cryptocurrencies and stocks.
In effect, brokerages hold stocks or other types of securities, acting as a custodian for investors. Additionally, to purchase and own stock, you typically need a brokerage account to handle the transaction. That account is verified by information like your address, Social Security number, signature, and more. This offers some protection in the event of identity theft or fraud.
That is not always the case with crypto, where crypto users themselves may be the custodians, and need to handle and store their assets accordingly. Some crypto users also keep their cryptocurrencies in their own personal (non-custodial) crypto wallets vs. a crypto exchange, which can be fully virtual or exist offline on a USB drive. That may create unique risks, such as forgetting your password and losing access to your account. Or you could misplace your USB drive, and lose all your crypto.
But there are instances in which exchanges may act as custodians, similar to brokerages. Crypto exchanges and certain other financial crypto platforms are subject to certain laws, meaning they must verify customers’ identities, as required by Know Your Customer (KYC) laws designed to help prevent illegal activities.
It’s also important to know that cryptocurrencies are not insured in the event of a financial institution’s failure as traditional brokerage assets are by the Securities Investor Protection Corporation (SPIC) and traditional bank deposits are by the Federal Deposit Insurance Corporation (FDIC).
The Takeaway
Stocks and cryptocurrency seem similar, but have some stark differences. Stocks offer investors a tangible piece of ownership in a company (even if it’s a tiny fraction of that company), whereas crypto assets don’t have intrinsic value. That said, both can offer different things for holders.
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FAQ
Is crypto harder than stocks?
In some sense, crypto may be a bit more difficult to comprehend than stocks. Cryptocurrencies are bought and sold on crypto exchanges; the fees are unpredictable; and many types of crypto are so new they don’t have a track record, and it’s hard to establish their value. Exchange-traded stocks are well established and highly regulated securities that can be bought and sold via a traditional brokerage or app, in a variety of forms — including index funds and exchange-traded funds, and more.
Is crypto taxed more than stocks?
Crypto is treated as property by the IRS, the same as stocks, so the two are more or less taxed in the same way. Further, crypto could be taxed as ordinary income if it’s acquired through staking, mining, or received as payment.
What are the main differences in regulation between crypto and stocks?
Stocks are regulated under a well-established federal framework overseen by agencies like the SEC, and have been for a long time. Crypto regulation, conversely, is new and evolving, and until recently, almost non-existent in the U.S.
Can buying and selling crypto impact the stock market?
There isn’t a huge sample size at this time, but it seems that what happens in the crypto markets is at least somewhat correlated with what happens in the stock markets. Meaning, investors in each market seem to be behaving similarly.
Photo credit: iStock/ljubaphoto
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