Investing in cryptocurrency vs stocks & shares.

Mar 23, 2021 | Reviews

Investing in crypto vs investing in the stock market. Is there a lot of difference? I’d say so.

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It feels to me that investing in stocks and shares whilst a global financial revolution is happening in cryptocurrency is a little bit like you saying you hate money.

All jokes aside, there is room for both but how do you decide what is best for you?

The difference between cryptocurrencies and stocks/shares.

The premise is the same. A company (stocks/shares) or a project (cryptocurrency) will seek to raise funds by offering a portion of their company/project equity and allow the public to invest.

With publicly traded companies this is usually done by allowing a specific amount of shares to be bought by anyone who thinks that they can later sell those shares at a higher price.

This price is driven by demand for the shares and the demand for the shares is driven by the future potential upside of the shares.

If for example, Google announces they have discovered a way to create the worlds first feasible and accurate Quantum computer for a fraction of the regular price and it will be affordable for the average person, Google share price will most likely go up and the company can expect a greater profit over the coming years.

The same for the downside of a stock/share, if Elon Musk continues to smoke jazz cigarettes on the most popular podcast on the planet, people could interpret that as a bad sign and begin to sell their Tesla stock, as they did…

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The same is true for cryptocurrency projects and their crypto tokens/coins.

A project team will release a designated token that reflects the value of that specific project. Taking Ethereum for example and their ETH token.

ETH draws value from several different ways –

  • Utility – ETH is a utility token that is used for transactions on the Ethereum blockchain.

  • Staking – ETH can be staked which allows anyone who hols ETH to act as a validator and approve transactions on Ethereum and receive a cut of the transaction fees.

  • Governance – ETH holders can vote on specific directions of Ethereum. This way holders of ETH are incentivised to vote in the best direction for the project.

You could argue that holding specific cryptocurrencies are more valuable than holding a share in a regular company as they actually allow some input and have a use.

They aren’t just pieces of paper that say you own a certain amount of shares. Some are I suppose but that is a different conversation altogether.

Volatility –

It is definitely a volatile place there is no denying that. I believe the volatility if you can look past it and have strong hands i.e. not selling at every minor movement downwards, you can do very well for yourself.

That being said not selling when you are new (or experienced for that matter) is a difficult task. Especially as you start to build large positions in certain cryptocurrencies and a 10% dip hits, it will take some strong willpower to keep your hands off the sell button.

Strong hands win in the end. We are at the dawn of a new(ish) paradigm in the financial industry, there are bound to be hiccups along the way.

If you are thinking about investing in stocks because they are less volatile cryptocurrency then think again…

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Tesla is the king of volatility. This may be because there is, like with crypto, a lot of emotion and external forces at play. Elon Musk lighting up some devils lettuce on Joe Rogan sent the TSLA price dipping. This isn’t the first situation that has caused extreme volatility in TSLA.

Since last year there have been numerous double-digit dips over the space of a few days in TSLA, you could almost mistake it for cryptocurrency…

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Again with Amazon, there are a lot of external forces at play here and just because it is one of the most profitable companies on the planet, doesn’t mean it doesn’t suffer from the volatility monster.

So don’t believe the hype. Cryptocurrency is volatile, yes but the volatility is not exclusive to crypto and is very present in stocks and shares too.

Understanding your own risk/reward personality is something to be aware of. IF you are the type who is too risk-averse you might make steady gains over a long period of time which is great.

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On the other hand, you may also miss out on huge upside potential by being cautious.

Make sure to assess each situation carefully and as a unique opportunity. Just because you may be open to risk for the greater payoff, doesn’t mean each potential investment carries the same weight.

Aping into every undervalued position is not the greatest idea of all time.

Potential Upside –

There are obvious penny stock companies that can and will go on to bigger and better things and take you along for the ride with them if you had the opportunity to invest in them early on.

Finding an undervalued gem is, in my opinion, a lot more difficult than finding an early cryptocurrency project.

Why is this? 

Well, a lot of projects in cryptocurrency offer what is known as a fair launch. This is effectively a situation where all of the available coins are purchasable and non are kept for founders or private investors.

Why is this a good thing?

Well, if anyone has seen the Wolf of Wall Street and the scene where Jordan and his minions own a large % of Steven Madden stock before it went public, they will understand what happens next.

The team reached out to all their clients and told them they had the inside scoop on the latest initial public offering (IPO), creating a media frenzy which in turn creates a demand for the stock.

The price is driven up by The Wolf and his team all the while they are secretly offloading their shares at insane premiums to hopeful investors, all the while they know that the company itself has no actual long term value.

This is a classic inside pump and dump scheme.

So, with a fair launch, you can see how this is impossible.

Recently, I have seen crypto projects that have charged private investors 2x the price of public investors, which is very reassuring for public buyers.

Not only that, as every record of all transactions in cryptocurrency, are stored on a publicly available transparent blockchain, you can see the allocations of each coin if there has been a private sale.

If the team say there has been a private sale of 10% of all tokens and you go to the many websites that allow you to check and see 50% allocation been given, this could and should signal alarm bells.

A heavily weighted allocation for private sale investors could easily be sat waiting for the coin to start trading and then they sell all their coins at a premium.

Luckily, as everything is transparent and on the blockchain, if you have done your own research you should be in a lot better of a position to make a judgement.

Time locks are another interesting tool crypto projects use to prevent private or even developer allocations from being immediately dumped on the market following an initial launch. These timelocks are written into the source code of the project and again are available for all to see.

Dilutions –

As companies grow they tend to require more funding. A very simple way to do that is to dilute their shares and effectively create more of them.

As you can imagine investors aren’t too best pleased when this happens. It comes back to basic economics if the supply goes up the demand and consequently the price fo the asset goes down.

Tesla has been slammed for this many times. Even if the price recovers, it could have been a lot higher if it wasn’t diluted. That being said, if the company was in financial difficulty, the money could have helped them stay out of trouble and progress.

The issue is is that the number of shares is not finite.

Cryptocurrencies on the other hand…

There will only ever be 21 million Bitcoin. That is the hard truth embedded into the source code. This creates scarcity and drives demand higher and higher as there is only a small limited supply that will not be diluted.

99% of projects have what is known as a hard-cap. This prevents biased interests from increasing the coin amount.

There are pros and cons to both and there is no harm in holding both at all. It is probably smart to do so as the markets tend not to be correlated.

If stocks go down, Bitcoin doesn’t tend to follow, they are their own beasts. This way if you do suffer a bad day in one asset class you may or may not be above water in the other.

There are many benefits that I personally see in cryptocurrency compared to stocks and shares usually, they all stem back to transparency and trustlessness.

The idea of a tiny board room of vested people deciding what to do with shares I own doesn’t sit right with me, especially when there is a much better way being already utilised in cryptocurrency every day.

The market is moving more and more to accepting cryptocurrencies and mass adoption is coming closer by the day.

If you believe you have missed the boat, you are most definitely wrong. There are new opportunities arising every day and new sectors within the cryptocurrency space being discovered all the time.

NFTs, DeFi these two huge industries have exploded in the past 18 months and there will be way way way more.

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