We’ve argued in the past that managing your own keys to self-custody your coins is just as risky or riskier than trusting a third party cryptocurrency exchange. You could say that a similar logic applies for trusting a traditional financial company. If you are only in this to speculate on the value of the coins, then this ability to own the coins themselves is less relevant.
Con: Cryptocurrency stocks are more expensive
As mentioned previously, GBTC shares can trade at a premium or discount to the price of Bitcoin. During times that the price of Bitcoin was going up, it would not be uncommon to pay a 15-30% premium. Even more detrimental is probably its 2% annual fee, which can drag down your returns. That fee is definitely on the higher end when compared to expense ratios of funds for traditional investments.
- Con: Cryptocurrency stocks are more expensive
- Is cryptocurrency like stocks
- Scams
- Is crypto taxed like stocks
- What is Cryptocurrency?
- Is cryptocurrency same as stocks
-
Volatility
- Regulation
- Is cryptocurrency similar to stocks
- The future of investing is now
- Does cryptocurrency work like stocks
- Pro: Potential tax savings
- Is crypto same as stocks
- Does crypto work like stocks
- Investment vehicles
- Is crypto like stocks
- Tips on Investing
- Is bitcoin like stocks
- Blockchain
- Is cryptocurrency like shares
- 7 Pros & Cons
- Pro: Easy to buy and sell
Is cryptocurrency like stocks
While high-volume cryptocurrencies like Bitcoin and Ethereum don’t tend to have this problem, it generally takes longer to trade the thousands of less popular cryptocurrencies, and prices for those assets tend to be more unpredictable.
Scams
Cryptocurrency remains largely an unregulated asset class, as bodies like the Securities and Exchange Commission and the IRS decide specifically how to govern it. This has led to a surge in potential assets for investors to explore, which can be fantastic for aggressive portfolios.
However, it has also come at a cost.
Estimates suggest that roughly a third of all new cryptocurrencies introduced to the market are fraudulent in some way.
Is crypto taxed like stocks
But this begs the question – what exactly is a cryptocurrency and how does that work? And is it safe to invest in cryptos rather than stocks?
What is Cryptocurrency?
A cryptocurrency is a digital asset or a digital currency, like a form of payment designed to work like any other currency – to buy goods and services – but is based on a decentralized recordkeeping system called blockchain and is secured by cryptography. In fact, the very foundation of cryptocurrencies such as Bitcoin lies in this new technology called the blockchain – the infrastructure that cryptocurrencies are built on.
The best thing about cryptocurrency is that a crypto is a cross between an asset and a currency.
Is cryptocurrency same as stocks
Volatility
Sudden and rapid changes in stock values are as old as stock exchanges. A piece of good news can launch a stock higher, just as bad news can send it lower.
As the terms “Black Friday” and “Black Monday” attest, stock markets can plunge in a day. Usually, there’s an explanation, either economic or technical (such as a program-driven sell-off).
Investors might see the value of their portfolios tumble, but total losses are rare.
One thing cryptocurrencies have been known for is their volatility. Ethereum, for example, started 2021 at about $730 and rose to $4,080 at the end of May.
It dropped to about $1,786 in July, before rising to $4,082 in late October.
Regulation
After the stock market crash of 1929 unleashed the Great Depression, the U.S. created the Securities and Exchange Commission (SEC) to devise and enforce investor protections.
Is cryptocurrency similar to stocks
They’ve been the go-to investment to build wealth for individuals and organizations for most of the 20th century and into the 21st century.
Cryptocurrency is the riskier investment. It offers the chance for big rewards, but at higher risk.
Together, they can help balance reward and risk in an investment portfolio.
The future of investing is now
Investing isn’t an either-or proposition.
It pays to have diverse investments that balance safer bets with investments that bear a greater chance of loss. By the same token, investors don’t have to decide between cryptocurrency vs.
Does cryptocurrency work like stocks
Wallets give you the flexibility to do other things, like send coins to people and play with newer cryptocurrency products like defi (if you’re that daring).
Pro: Potential tax savings
A less obvious but maybe bigger benefit is the potential savings you’d get by putting your cryptocurrency stocks and ETFs in an IRA or Roth IRA account. The extra money you’d make going through a tax-advantaged investment account can be significant.
You can see for yourself using a free calculator in part II of this blog post.
The potential tax savings looks pretty impressive, eh?
Counterpoint: Keep in mind that the price of Bitcoin or any other cryptocurrency could go to zero. (Hey, we’re not “Bitcoin maximalists” who are 100% certain that Bitcoin will go to $1m.
Is crypto same as stocks
Note – It is possible that this may change, as this market changes rapidly.)
While many advocates of cryptocurrency argue that the technology behind cryptocurrency has made clearing houses obsolete this is untrue. A clearing house functions as a middleman that brings buyers and sellers together.
It also means that there is no centralized pricing mechanic for cryptocurrency. While investors have published market prices as a guide, ultimately the price of any transaction will depend on the market and even the traders involved.
This makes cryptocurrency a generally less liquid asset than stocks.
Does crypto work like stocks
Consensus built into the chain validates the transactions.
Some say the real value of cryptocurrency lies in the underlying blockchain technology. A number of businesses have adopted blockchain technology for recording transactions made with conventional currencies as a way to increase trust and prevent fraud and money laundering.
Investment vehicles
With Bitcoin prices reaching more than $60,000 a coin, it might seem more expensive to buy cryptocurrency rather than stock.
However, investors can buy fractional shares of Bitcoin for smaller amounts. Other vehicles are cryptocurrency funds that unregulated entities operate.
Cryptocurrency achieved a legitimacy milestone as an investment vehicle in 2021 when the Securities and Exchange Commission (SEC) authorized the trading of an exchange-traded fund (ETF) related to Bitcoin.
Is crypto like stocks
Investors looking for a mix of growth and risk management should consider stock market index funds.
These are not subject to the same gains as cryptos or stocks, but nor are they exposed to the same risks.
Tips on Investing
- How should you balance the kind of wild ride (but potentially high-performing) assets offered by crypto against the more ordinary investments of a stock? Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you.
Is bitcoin like stocks
Bitcoin has a limit of 21 million coins that can be created, leading to a scarcity of supply. That should put a brake on the inflation that can occur with government-backed currencies.
Cryptocurrencies are increasingly accepted as currency.
More and more businesses take crypto as payment, and financial transaction platform Square facilitates crypto transactions. In 2021, El Salvador became the first country to adopt Bitcoin as legal tender.
Blockchain
Cryptocurrency relies on blockchain: a distributed ledger technology that tracks and logs crypto transactions. Blockchain combines cryptography, a decentralized network of computers, and the common agreement of users to track transactions. Data from each transaction is kept in a block that connects to those before and after it in a chain that near-tamperproof cryptography protects.
Is cryptocurrency like shares
Ok, now that that’s out of the way, let’s go into the pros and cons.
7 Pros & Cons
Pro: Easy to buy and sell
This is the most obvious benefit of going with a crypto stock. You can buy and sell these the same way you do for ordinary stocks.
You don’t have to create an account at a cryptocurrency exchange & learn how to send/receive/store coins on wallets. You just go to Fidelity, Vanguard or any traditional brokerage firm and buy & sell shares like you would for anything else.
Counterpoint: Setting up an account at Coinbase is relatively straightforward.
Even though dealing with wallets is more effort, it’s because wallets are an additional feature.
Second, you can hold the stock and collect dividends if the company behind the stock chooses to make dividend payments.
From time to time a company may buy back its own stock, creating a more guaranteed form of capital gains.
You can only collect profits off cryptocurrency through capital gains. While utility tokens offer a complicated series of software solutions, ultimately any crypto on the market can only be turned into dollars by selling it to another investor. (Furthermore, despite nearly 10 years’ worth of industry-wide development, at time of writing no utility token has turned its software into a marketable product.)
This makes cryptocurrency somewhat more speculative than stocks tend to be. A pure cryptocurrency, ultimately, is only worth what the next investor is willing to pay for it. There is no underlying asset to influence or stabilize that value.
