Why Are Investors Switching From Stocks to Crypto?

Why Are Investors Switching From Stocks to Crypto?
Image Source: Getty Images
Read News

Read News For Me

Cryptocurrencies were launched Over a decade ago, with the emergence of Bitcoin, but they have become a better investment alternative even for traditional market investors. According to a recent survey by Cardify, in September 2021, a crypto investor puts an average of $263 on cryptocurrencies compared to $250 on the traditional brokerages. Another study by Civic Science shows that the young population who prefer to invest in cryptocurrencies as long term investment has jumped from 23% to 30%. The survey shows that people favouring stocks has reduced from 90% in June to 76% as of November this year. At the same time, preference for crypto has increased from 10% to 24% within the same time frame.

This shift towards cryptocurrencies has been mainly driven by novice investors who prefer to trade assets more petite than a year. Most of them don't consider themselves experts on digital investments, probably because they are new to the industry. Stocks and cryptocurrencies are different investment assets.

What are stocks?

Stocks represent ownership or investment in a company where investors buy stock to get returns on their investments. Each stock represents a certain percentage of ownership in the company by the stock owner. Buyers receive stock ownership in proportion to the number of shares they purchase from the company. Stocks are a way to build wealth. An investor can generate a return by selling the stock shares to another investor. The profit or return made is known as a capital gain. Investors can also earn returns through the dividends paid to the stock, although not all stocks pay dividends.

What are Cryptocurrencies?

A cryptocurrency is a digital currency or a digital asset in which all the transactions are verified and recorded using cryptography. Cryptocurrencies are decentralized based on blockchain technology, which means any central authority does not issue them.

Bottom line

A veteran investor would know the critical differences between investing in stocks and cryptocurrencies. Around 50-70% of the cryptocurrency market is tied up by Bitcoin holders, which is not the case with the stock exchanges where any company can emerge as a valuable investment.

Both stocks and cryptocurrencies are volatile assets to invest in. Although individual stocks can be less volatile than cryptocurrencies, they're again not stable. While stocks provide a return through capital gains and dividends, crypto holders can only earn returns through capital gains.

Cryptocurrencies somewhat turn out to be more speculative than stocks as they only have value if the other investor is willing to pay for it. In the case of stocks, investors can analyze a stock's value by going through the underlying company's market dynamics.

Stocks are one of the most regulated assets one can trade for; investors can only trade on a handful of centralized exchanges. In contrast, cryptocurrencies are decentralized exchanges based on digital ledger technologies.

Cryptocurrency is a booming asset that has attracted enormous attention from investors. Still, if you're looking for balanced and mixed growth, stocks can be risky but less volatile assets than cryptocurrencies.