Diversity of assets is the lifeblood of any successful portfolio in the long term. Having cash, stocks, real estate, bonds, and even cryptocurrencies will help spread out the risk. Every generation has speculative investments that are inherently high risk but have large profitability margins. In the early 1900s, it might have been oil and in the 1990s, internet stocks.
Today, cryptocurrencies are the speculative investment of the moment. They differ from traditional stocks because they can have massive swings in their values. Therefore, investors considering both must consider their comfort and appetite for risk. Though the stock market can have drastic swings, it cannot reasonably compare to the trends seen in cryptocurrency.
What are Cryptocurrencies
These are relatively new means of exchange that have grown exponentially in adoption and use. A segment holds that cryptocurrencies are the future of money with the potential to replace legacy currencies. Another camp believes cryptocurrencies are inherently a lot riskier to be considered a currency supporting the financial system. Cryptocurrencies do not have the recognition of most nations, which means their value is entirely dependent on the market.
Cryptocurrencies as a Digital Asset
These currencies are maintained on decentralized computer networks spread across the globe. They are secure due to the strong cryptography to secure all the transactions, hence the “crypto” in the name. Each cryptocurrency holder has to have a 16-character password to access their account; there have actually been people who have been locked out of their multi-million accounts.
Bitcoin was the first cryptocurrency. Developed in 2009, it remains the most popular crypto making up about two-thirds of cryptocurrency capitalization. Over the years, more cryptocurrencies have been developed, resulting in a variety of over a thousand cryptocurrencies. Some of the best-known cryptocurrencies include Ethereum, Peercoin, and Litecoin.
Bitcoin and Volatility
Volatility has come to define cryptocurrencies as their value can quickly make wild swings without notice. In 2021 Bitcoin experienced swings ranging from $28,383 to over $65,000.
Proponents of Bitcoin claim it is resistant to inflationary pressures. Bitcoin has a limit of 21 million coins, and these coins can never be mined, creating scarcity. This simple fact separates them from traditional currencies manipulated by government and central banks affecting their value.
More people are accepting Bitcoin currency as a hedge against inflation. Today, increasingly, more businesses accept Bitcoin for payments which financial institutions like Square recognize and facilitate their transfers. El Salvador became the first country in the world to accept Bitcoin as legal tender.
The Blockchain
Blockchain is a ledger held on a decentralized network of computers that logs and validates every transaction. The technology encrypts all the data through advanced cryptography technology hence the “crypto” in cryptocurrency. The decentralized system of computers works with terms agreed by the member of the network used to track all the transactions.
Some experts in the field claim the actual value of the technology is a blockchain upon which cryptocurrencies are built. Some businesses are already using blockchain to validate transactions made with traditional currencies. Measures such as these help limit instances of fraud and money laundering.
Cryptocurrencies as an Investment
Bitcoin prices have risen to all-time highs of over $65,000 per coin, making them seem like they might be too expensive for average investors, especially when compared to stocks. However, Bitcoin and other cryptocurrencies are much more accessible as people can buy fractional shares at much lower prices.
In 2021, cryptocurrencies came a lot closer to getting the legitimacy traditionally reserved for stocks when the Securities Exchange Commission(SEC) accepted the trading of Bitcoin in exchange-traded funds (ETF). This move allows brokerage firms to engage in the Bitcoin trade without going through U.S regulators.
Read More – How to make money with cryptocurrency?
Stocks
Owners of stock essentially own a piece of a company. In the beginning, the company owners own the entire company and give up some of the ownership when they sell the shares. Through a public offering, the company can sell the shares to the open public.
Even after the company goes public, it can still release more shares to raise capital. Decisions such as these have the effect of diluting the value of the current shares but can offer a lifeline to a company under financial stress.
Stock owners have the right to vote on the board of directors and company policies at the annual shareholder meetings. The day-to-day is handled by the company management though enough shareholders can dictate the direction of the company.
Stock Value
When the company’s performance is good, stockholders will benefit as there will be a rise in the company’s value. The better the company does, the more the stock price goes up. Speculation on the future growth of the company can also have a positive effect on the stock price. Equally, when the company’s performance is poor, there will be a subsequent drop in share price.
Investors can also get additional value through the payment of dividends. The decision to pay dividends depends on how well the company is doing, but the board can decide not to pay dividends if the company needs cash. Older and more established companies are a lot more likely to pay dividends than compared to a startup. Through Capital Exploits, our analysts can help you pick out the best companies for dividends.
Stock Classes
Stocks come in two classes, common and preferred shares. Holders of common shares have a right to vote on the company’s affairs. Owners of preferred shares do not have this right but get special treatment. For example, a preferred shareholder may get a higher rate on dividends or has the right to be paid first after liquidation.
Owners can get the shares that best serve their investment goals. Hedge funds have stocks as one of the primary drivers, and through Capital Exploits Hedgies Uncut, you can follow along on the investments of the most sophisticated hedge funds in the world.
Differences between Stocks and Cryptocurrencies
Asset ownership
To get shares, owners have to go through brokerage firms who will buy the stock and hold it in your name. Newer technologies like Robinhood offer a more streamlined approach and require the user to offer personal data like their address. Traditional brokers offer a greater level of privacy.
A significant benefit of cryptocurrencies is anonymity, as no one can know what is in your portfolio. All the crypto is held on a virtual wallet or a USB. The drawback is the responsibility to remember the 16 character password. There is no solution if this password is forgotten. As the industry is growing, companies like Capital Exploits offer products like Insider and Hedgies Uncut that provide direct trade tips and ideas, future predictions on stocks and crypto, and weekly reports to guide you through various investments.
Volatility
Cryptocurrencies are synonymous with wild swings, with Ethereum starting at $730 in 2021 and rising to $4090 by May. Stocks in a similar fashion can experience giant swings in valuation. However, unlike crypto, there is usually an explanation, be it technical or economic, that drives a sell-off.
Though investors can see drops in valuation on their stocks from time to time, complete wipeouts are pretty rare.
Exchange services
Since stocks are a lot more established, they have robust, well-regulated exchanges. They are designed to handle large amounts of trades each day, guaranteeing transparency and stability. They can also be found across the world, enhancing accessibility.
Exchanges meant for crypto are fewer since the space is so new. Binance and Coinbase are today some of the largest Crypto exchanges. Some exchanges work with third-party companies to ease the transaction process using traditional currencies.
If you want to stay ahead of the curve and be at the forefront of the latest happenings in the field of stock and crypto, Capital Exploits is the way to go. With more than a thousand members, you too can become part of a force that receives reports, tips, and investment ideas on global trends and how they affect various investment and financial portfolios.