The markets are once again alive with excitement, and it’s during periods like this that the number of new investors tends to spike. However, amidst the excitement of making your first investment, it’s important to understand the inherent risks involved with any type of trading. In order to gauge your risk, it’s important to understand your investment.
On one hand, you have stocks, which have always been a popular investment because of their reliability and long history. On the other hand, we have cryptocurrency, which is wildly popular for its innovation and the potential for massive earnings. Many people also believe that cryptocurrencies are the future of finance.
Both investment types are risky, and there’s always the danger that you could lose your money. It’s really a matter of determining which investment suits you. Here are some factors to consider:
Volatility
Since stock values are dependent on the sales performance of the company they represent, they are significantly less volatile than cryptocurrencies. Assets such as gold and silver have long served as safe-haven assets. Inversely, cryptocurrencies are extremely volatile. Volatility is not necessarily a bad thing because the greater the price action, the greater the potential gains (and losses) there are.
Cryptocurrency is significantly more volatile than stocks because the asset class is still relatively new. Not only this, but cryptocurrencies are also much more accessible than stocks. Unlike stocks that require a minimum of $500 to invest, cryptocurrency investments can go as low as $100. However, as the asset class matures, we can expect the prices of layer 1 cryptocurrencies such as Bitcoin and Ethereum to stabilize.
Trading Timeframe
Your trading time frame can either be short-term or long-term. While you can technically invest in both asset classes for both scenarios, the volatility of cryptocurrency makes it less ideal for long-term trading and better for short-term trading.
The opposite rings true for stocks, which are geared toward long-term growth rather than quick rallies and dumps. Generally, cryptocurrencies require more attention while stocks can be left alone safely.
Technology and Future-Proofing
Stocks are an old asset class and they run on similar machinations as those that have been in place for several decades now. The stock market is centralized wherein all orders on the stock market are routed to a central exchange.
On the other hand, cryptocurrencies are decentralized, which means that there is no single authority that oversees trades. Instead, there are several exchanges and services like netcoins.ca that enable users to buy cryptocurrencies such as Bitcoin. Blockchain technology is what makes it possible for an asset class to be transparent and publicly viewable, while still retaining its security and anonymity.
The decentralized nature of cryptocurrencies also means that no single entity can hold a monopoly over the system, and people have more control over their finances as a result.
If there’s one rule that applies to all asset classes, it’s that investors should always make it a habit to do their due diligence before investing any money.
Ayesha completed her Doctor of Philosophy in Biochemistry and started her career as a College Lecturer in 2013. Today, she’s a happy mom of 2 Kids in the field of digital marketing. She loves reading books, spending time with her family, and making delicious food for her husband.
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