It’s no question that 2022 has been one of the most turbulent years for the crypto industry. Bitcoin, the world’s largest cryptocurrency, has plummeted 65% so far this year and is currently trading under $17,000.
In May, the collapse of TerraUSD cost investors billions of dollars after the algorithmic stablecoin lost its peg to the US dollar.
If that wasn’t enough, FTX, a cryptocurrency exchange that was valued at $32 billion earlier this year recently filed for bankruptcy, leaving the crypto world in rude shock.
Even as investigations to determine what really happened with FTX continue, it looks increasingly likely that millions of individuals and businesses that trusted the crypto exchange with their money could be left holding the bag.
These dramatic events have somehow permanently damaged the prospects of cryptocurrencies being included in mainstream portfolios and proved once again that stocks are inherently safer than digital currencies.
Read on to learn more about cryptocurrencies vs. stocks, and why stocks are the better choice for traders.
Differences between cryptocurrencies and stocks
Cryptocurrencies or cryptos are digital currencies based on blockchain technology. The term “crypto” refers to the cryptographic techniques that are used to secure the currencies, protecting them from being spent more than once or counterfeited.
Some of the best-known forms of cryptocurrencies include Bitcoin, Ether, and Dogecoin. Cryptocurrencies have become steadily popular over the past couple of years. You can buy cryptos at a cryptocurrency exchange such as Binance or Coinbase.
Stocks, on the other hand, represent partial ownership of equity in a company, and they reflect the value of a functioning company. Stocks are primarily traded on stock exchanges, such as the New York Stock Exchange or the Nasdaq Stock Market.
Why it’s better to trade stocks instead of cryptocurrencies
Stocks are less volatile
For many investors and traders, stocks have long been an appealing financial instrument. When a given company performs well, so do the individuals who have put money in the stock.
If the value of a stock goes up, you have the option of selling it at a profit. Of course, companies don’t always perform well, so you run the risk that your investment can decrease in value as well.
While stocks are subject to volatility due to interest rate changes and uncertainty caused by monetary policy changes, inflation, and war, they are generally far more stable than cryptos.
Cryptocurrencies are notoriously unstable and can undergo sudden, drastic changes in price, sometimes without warning. It’s not uncommon for Bitcoin to lose nearly 50% of its value in four days or gain over 600% in a year.
When a cryptocurrency fails, you will most likely lose all the money you invested.
Stock market regulation protects traders
Cryptocurrencies remain largely unregulated. The lack of oversight and safeguards means everyday traders and big investors face alike face a higher risk of fraudulent activity.
By contrast, stocks are heavily regulated. For example, in the US, the Securities and Exchange Commission requires all publicly traded companies to disclose information that can impact their stock value in order to protect investors. Regulation protects investors and prevents fraudulent activity within the stock market.
Stocks offer more liquidity
Stocks are generally highly liquid since there are so many active traders in the stock market. High liquidity makes it easy for a trader to get in and out of a trade.
With cryptocurrency, liquidity varies quite a bit from one cryptocurrency to another. Bitcoin is more liquid than most cryptos because it has a large trading volume. However, many cryptocurrencies have lower levels of liquidity.
Cryptocurrencies offer many advantages as a form of digital asset in projects on and off the blockchain. However, the cryptos space is still not ready to take center stage in the world of finance and the above reasons are why it’s better to stick to stocks.