Should you invest in crypto or stocks?
Many people think about cryptocurrency investment in the same way as traditional investment, but they’re vastly different.
Both cryptocurrency and stocks facilitate trade, and while there’s nothing inherently wrong with cryptocurrency, there is a lot of uncertainty and risk around it. Just like any investment decision, it’s important to equip yourself with the right information to see if it’s the right choice for your portfolio.
How does cryptocurrency work?
Cryptocurrency, also referred to as crypto, is a digital currency that can be used as a form of online payment for goods and services. There are a variety of currencies to choose from and they all use a system called blockchain. Blockchain is essentially a decentralised database (not owned by one person or company) that stores data in a specifically structured way, creating ‘blocks’ of information that are then ‘chained’ together, forming a timeline.
Why is it suddenly so popular?
Crypto’s popularity stems from the idea that it’s the currency of the future and might be worth a lot more one day. It also removes the role of banks from managing the value and supply of money, and the technology behind it is perceived to be secure and transparent. However, you still need real currency (i.e. Dollars, Euros, Rands) to buy cryptocurrencies - creating an exchange of value from one form of money to another, just like you would when buying chips at a casino or tokens to play arcade games.
The difference between investing in stocks vs cryptocurrency
When it comes to investing in stocks, the premise is that you own a (small) piece of a company, called a share. This lets you partake in the company’s profits and hopefully, as the value of the company grows, the value of your share(s) will grow. There are two ways in which you profit:
- The value of your share(s) goes up, which means you can sell it for a higher price than what you paid for it.
- Some companies pay dividends, which are regular payments that distribute some of the company’s earnings to shareholders.
When it comes to crypto investment, there are some unique challenges:
When you invest in crypto, the value of it might go up, but it’s all based on speculation, and it could disappear at any time. This creates a volatile environment where the value can suddenly, and drastically, change at any time without real reason.
It also isn’t backed by real assets, securities or company performance. Therefore, it doesn’t generate a profit or cash flow on its own. To make a return or income from it, you must sell it and someone must pay more for it than you did.
- No regulation
While the decentralised nature of crypto is one of the main selling points, it also means that there’s no one ensuring fair trade or holding anyone accountable, which leaves lots of room for illegal activity.
Currently, the only way to buy crypto is through a cryptocurrency trading exchange and you need a separate app to access these. You can’t buy it from banks or investment houses, and you can’t use it directly to pay for major purchases or to make transfers.
The bottom line
All investments carry some risk, but cryptocurrency is a speculative and volatile purchase that doesn’t have the history and security measures in place to protect you, the investor.
With the right investment expertise and experience, it’s possible to make informed investment decisions that suit your lifestyle and risk appetite to achieve your financial goals.
Explore our investment solutions and take advantage of our proven track record to preserve and grow your wealth.