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Crypto vs Stocks: 8 Key Differences Traders Should Know

By Colin Dodds · July 26, 2021 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Crypto vs Stocks: 8 Key Differences Traders Should Know

Cryptocurrency vs. stocks may sound like a crazy debate to longtime traders and investors. After all, cryptocurrency was a footnote or an oddity just a dozen years ago. But it has emerged as a formidable force in the world of finance.

The meteoric growth of crypto has many investors considering entering the market.The total value of all cryptocurrencies passed $1 trillion in January of 2021, and some predict it could reach $11 trillion in 2023.

But despite its size, crypto has many important differences from traditional investments. Especially for new traders considering investing in crypto, here are some things to review as you enter the crypto vs. stocks debate.

Stocks: A Quick Review

A share of stock represents a percentage of a 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 reflects the value of that company.

Recommended: What Is a Stock? A Closer Look

Cryptocurrency: A Quick Review

Cryptocurrencies are different types of digital assets created and stored digitally.

When you buy cryptocurrency, you own a set amount of currency. The value of a cryptocurrency reflects a variety of factors, including current supply and demand for that currency. In some cases, it also reflects a faith in the underlying technology that powers the currency.

Recommended: What Is Cryptocurrency? A Beginner’s Guide

8 Major Differences Between Crypto and Stocks

Cryptocurrencies and stocks are very different assets. Here’s a look at some of the characteristics that set them apart.

1. Ownership

To 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.

Cryptocurrency offers more anonymity. You keep your Bitcoin or other digital assets in a wallet, which can be fully virtual or even on a USB drive. That anonymity may create unique risks, such as losing currency to hackers or forgetting your password and access to the account. Or you could misplace your USB drive, and lose all your money. While anonymity has its advantages, it also has its risks.

Recommended: What Is A Crypto Wallet?

2. Exchanges

Stock exchanges have existed in some form or another for more than two centuries, most famously on Wall Street, in New York City. Cryptocurrency exchanges, on the other hand, are fairly new. The largest one, Binance, launched in 2017. Coinbase, another major player, was created in 2012.

Binance had a daily trading volume of just over $50 billion in May of 2021. At the same time, the Nasdaq, which is just one small part of the global stock market, had a trading volume that was five times that amount. And the Nasdaq is only 14.5 % of the total stock market by some estimates.

3. Liquidity

Smaller markets also affect the ability to trade in and out of your investments, whether they’re stocks or cryptocurrencies. That ability to trade at will is called liquidity. Investors typically consider stocks liquid, since there are so many active traders in the stock market.

With cryptocurrency, on the other hand, liquidity varies from one form of crypto to another. Bitcoin is more liquid than the twentieth biggest cryptocurrency, Polygon, simply because it has a higher trading volume. That means there are more buyers and sellers who want to trade if you want to get in or out of that particular cryptocurrency.

Both stock investors and crypto investors can fall victim to slippage, which involves losses when you have to sell a large amount of an asset during a period of low liquidity. However, the risk is higher for crypto owners, given the lower levels of liquidity in the crypto markets.

4. Volatility

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 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 more likely to undergo sudden, drastic changes in value, sometimes without warning, leaving some to particularly wonder why Bitcoin can be so volatile. That can lead to potentially huge wins for crypto traders, but it can also create large losses in a very short period of time. More than 1,600 forms of crypto have even vanished altogether. While it is possible for public companies to go bankrupt, they’re far less likely to lose all of their value than most cryptocurrencies are.

5. Trading Costs

Every time an investor buys or sells stocks, they may have to pay transaction fees that eat into their returns. Even investors who purchase low-fee, no-load index funds have to pay fees that go to a manager who buys and sells the stocks in the fund. The costs in other funds and for trading through a brokerage account will be higher.

But trading crypto can also come with substantial costs. Crypto exchanges charge fees. And there are “gas fees,” the costs extracted by the network to verify the validity of a given exchange on the blockchain that underlies the currency. Those fees vary widely from one form of crypto to another.

Some networks will raise the gas fees to speed up transactions. But by some estimates, the leading marketplaces charge at least 1.5% in fees to buy or to sell crypto. That will wipe out any gain under 3%.

6. Regulation

There are national agencies such as the Securities and Exchanges Commission (SEC) in the United States, which oversee stocks and stock markets. The regulation by those companies ensures a certain level of transparency into the publicly traded companies.

By contrast, cryptocurrencies remain largely unregulated.

That’s a benefit to some investors, who may have mixed feelings about government regulation. Decentralized networks run each cryptocurrency, with individuals focused on maintaining their technology and ensuring the integrity of the currency. Still, all cryptocurrencies and exchanges remain at risk of facing drastic transformation or elimination by government regulation in the near future. In June, for example, the United Kingdom banned the Binance exchange from operating within the country.

7. Trading Hours

The stock markets are 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.

8. Diversification

Many investors aim to build a portfolio with diversified holdings that perform differently in different markets. In general, stocks often perform in correlation with the broader economy and are greatly impacted by factors like inflation.

Some proponents of cryptocurrency believe that it’s a non-correlated asset, meaning that it doesn’t react to market events like traditional securities such as stock and bonds. Some also believe that it could act as a hedge against inflation, making it a valuable counterweight in a portfolio that has more inflation-sensitive assets.

The Takeaway

When comparing cryptocurrency vs the stock market, it’s important to remember that they’re very different assets that play potentially different roles within a portfolio. The right mix for you depends on your personal risk tolerance, financial goals, and current financial picture.

If you’re ready to start building a portfolio with stocks or cryptocurrency–or both–one great way to get started is by opening an account on the SoFi Invest® brokerage platform. Members can start with as little as $5, and make purchases directly within the app.

Photo credit: iStock/Velishchuk


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
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