How is Buying and Selling Crypto Currencies Different than Buying and Selling Stocks? The crypto market seems to be in vogue in the current scenario. With the high returns it offers, several people have shown a keen interest in cryptocurrency. Cryptocurrency trading speculates the crypto price movements via a CFD account or buying and selling cryptocurrency via crypto exchanges. The cryptocurrency industry is a highly volatile market. It is because of this volatility that it is often compared to stock markets. People often tend to get confused between the two.
But fret not, since we’ve got you covered! Here is a detailed guide on the differences between a stock market and a crypto market, so the next time your friend starts lecturing you about crypto, you have some inputs to give. Read on!
What is the Crypto Market?
Let’s get you started with the absolute basics. A market is a place where goods are traded, bought, and sold. So it is common sense that the crypto market is a marketplace where cryptocurrency would be traded. However, there is a catch. They have no physical presence. They are only present on your screens and are operated on the blockchain.
Crypto networks are decentralized, which means they are not administered or supported by any central authority such as the government. Rather, they run across a network of computers. However, cryptocurrencies can be bought and sold via cryptocurrency exchanges. They can also be stored in ‘wallets,’ both of which you can avail on WazirX.
Contrary to conventional currencies, cryptocurrencies prevail only as a shared digital record of ownership stored on a blockchain. When a user wants to send cryptocurrency coins to another user, they send it to their digital wallet. The transaction isn’t deemed definitive until it has been ascertained and augmented to the blockchain through the process of mining. This process is also used to create new cryptocurrency tokens.
Since we have been referring to the blockchain so many times, one common query that you could have is, what exactly is this blockchain? Well, remember the lego blocks that you used to play with as a toddler? How did you build towers by connecting them?
The blockchain does pretty much the same thing. Just in this scenario, the lego blocks are replaced with blocks of data. Blockchain functions by documenting transactions in ‘blocks,’ adding new blocks at the front of the chain.
It is safe to say that cryptocurrency has come a long way from its former status of being for criminals and money launderers. Today it is being speculated that cryptocurrency might revolutionize the gaming industry, media, and even healthcare.
However, the crypto market is a lot different from the stock market. If you are a newbie in the crypto market but a veteran in stock, it could be a difficult territory to navigate. The biggest difference between stock and crypto is in terms of how each is valued. Stocks are backed by legitimate companies that are expected to turn a profit. They involve physical assets as part of their valuation. In fact, if you are good with numbers, you can reasonably predict if the stocks are rightly priced by using mathematics.
Cryptocurrencies, on the other hand, aren’t backed by assets in most cases. They are mostly estimated based on their hype, though some also get value lifts based on their functionality. As a result, it’s a more subjective valuation. Hence, it is not always easy to predict whether a particular currency is worth it.
Difference between Stock Market and Crypto Market.
Apart from the difference in valuation mentioned above, there are several other fundamental differences between the two markets. Let’s discuss them.
#1 Decentralized vs Centralized exchange
As mentioned earlier, cryptocurrencies are decentralized, while stocks are under a centralized structure. This consequently means that crypto operations and transactions are not controlled by any central bank or any other central figure authority. This decentralization provides great transparency and control to crypto users. However, profits earned by stocks and crypto are subject to tax.
One drawback of this unregulated nature is that the crypto market can be more prone to fraud. The stock exchange market in India works under centralized regulation. It is regulated by the Reserve Bank Of India (RBI) and the Securities and Exchange Board of India (SEBI) to curb mismanagement and prevent fraud.
#2 Volatility
Stocks and cryptocurrency are sometimes considered at par because they both are subject to market changes. However, their volatility tends to differ a lot. Crypto exchange is a highly lucrative trading option because it is covered with risks owing to its budding market.
This makes the crypto market extremely volatile and consequently a source of quick and high returns. In comparison to this, the stock market is highly stable, even conventional in some sense, and offers diverse trading options. Investment returns are relatively simpler to foresee in a stock market.
#3 Profit Controlling Factors
Both the stock market and the crypto market are regulated by demand and supply. However, the key factors that affect this demand and supply tend to differ. For stock markets, this is regulated by political discussions, news about the company that the stock belongs to, natural disasters, etc.
On the other hand, crypto prices are generally regulated by the buzz it creates. And let us give you a fair warning, this could be something as trivial as an Elon Musk tweet. Sometimes the value fluctuation of cryptocurrency also depends on the functionality of the cryptocurrency.
Conclusion
Naturally, people want to invest their money in a good source to build wealth. All kinds of investment options come with a certain degree of risk. However, every investment differs in terms of volatility, and some can easily shield themselves against massive economic blows.
For this reason, in the 21st century, cryptocurrency and the stock market have emerged as the top investment choice. This has induced a great debate on the crypto market vs stock market. One can choose to invest in any of the two, or even both, depending on their risk potential. You can invest safely in crypto by simply looking into several popular crypto exchanges, WazirX being one of them.
