The explosion of both cryptocurrency and stock investing has sparked debates amongst new and seasoned investors.
The stock market has been around in one form or another for centuries and has been the investment choice for most. While cryptocurrency has also been around for several years, it has recently gained popularity leading to its drastic growth.
Both options come with its drawback and benefits. Choosing which to invest in depends on more than what’s popular in the market. Rather, it’ll depend on your current portfolio, investment preferences, and financial capabilities.
In this article, we’ll take a look at the different aspects of both markets and what we can aspect from these investments.
Accessibility
To invest and trade in the stock market, you need to open a brokerage account or get in touch with a stockbroker. This requires having some knowledge about the stock market and fees.
While the stock market’s introduction to the online world has made it more accessible to the public, it still comes with the perception of being heavily regulated with high financial commitments. Although this may be a plus point for some investors by providing safety and ownership, it can be a deterrent for others that don’t understand the market.
The learning curve for traditional stock is also steeper compared to cryptocurrency. Despite the plethora of information about the stock market and beginner guides, it still requires consistent learning and research. Those who lack the time for extensive research can choose to hire an advisor, which is advisable but can be costly.
Cryptocurrencies, on the other hand, comes with a lot of basic level information that’s easier to understand. There’s also a perception that it’s much easier and cheaper to trade cryptocurrencies than it is with stocks. A study found that cryptocurrency appealed more to women and the underrepresented groups for these very reasons.
The growing popularity and cost of cryptocurrencies will continue well after 2022. As corporations and countries begin to accept and regulate digital currency, it’s important to continue watching the market to understand which currency will be popular in 2022.
Risks
There are potential risks in every form of investment. This is especially so with volatility in the market and the current economic state.
The stock market has had a long history of existence, which allows investors and speculators to use historical information to make investment decisions. This minimizes potential risks as there is guidance to refer to for an understanding of where the price might be heading towards. You can account for elements like the ratio of the company’s stock price, to the company’s current financial health to make an informed decision.
There are different risks to consider in traditional stock, which will depend on the stock’s sector. While Wallstreet is expecting the stock market to peak in 2022, some economists are cautious about the expectations taking into consideration the uncertainty of the pandemic and its recovery course.
Although cryptocurrency has gained a reputation for being volatile with sudden drastic changes to its value in the past, the pandemic has shown that it can withstand major economic shifts. By the end of 2020, the world’s best-known cryptocurrency, Bitcoin rose more than 4%. Investors saw Bitcoin as an alternative currency, especially with major companies embracing cryptocurrency as a potential mainstream payment method.
Amidst the different speculations for the traditional stock market, the news is abuzz with the prediction that Bitcoin will continue to grow. Bloomberg predicts Bitcoin will hit an all-time high price of $400,000 by the end of 2021, which will kick off 2022 on a good note for bitcoin investors.
Deciding which currency to invest in will also play a role in the amount of risk involved for the future.
While there are risks involved in an unregulated trade, it seems investors are viewing cryptocurrency as a growth asset that can potentially perform stronger than traditional stocks.
Tax Losses
Having the market value of your investment drop to less than what you’ve initially invested in can be to your benefit. You can sell those investments to harvest your tax losses.
Tax losses are great because they can reduce your overall tax bill. You can use these savings to reinvest or diversify your portfolio. It goes without saying that the more frequently you are allowed to harvest tax losses, the more savings you’ll be able to generate.
Although the stock market allows you to harvest tax losses, it comes with restrictions and limits. You’re only allowed to harvest your tax losses a certain number of times because stocks are considered property and are subjected to the wash sale rule. This may have been beneficial prior to 2020 but could pose a problem in the present and future considering the volatility of the market.
This rule prohibits you from claiming losses on stocks that are sold at a loss and then repurchased within 30 days before or after the initial disposal.
The benefit of tax losses has shifted more towards cryptocurrencies. Certain types of cryptocurrencies, like Bitcoin, allows you to harvest your tax losses more frequently. Mainly because Bitcoin is not treated as a property, and therefore, not subjected to the wash sale rule.
Diversification
Many investment websites will advise you to build a diversified portfolio that should ideally be able to withstand and perform in different markets and economic states.
While stocks have been known to perform well in relation to the broader economy, they can be heavily impacted by factors like inflation and recession.
The pandemic is an example of this where the FTSE, Dow Jones Industrial Average, and the Nikkei fell in the first few months of the pandemic. Although the market is recovering slowly, the possibility of new variants and further lockdowns may trigger more volatility in the market.
Having a diverse portfolio would have been handy and smart during a time like this.
Cryptocurrencies like Bitcoin and Altcoin are known to provide that diversification. Considering how well cryptocurrency has fared during the pandemic, it’s a logical alternative to some of the more common assets.
Cryptocurrency exchanges allow you to use your Bitcoin to purchase other currencies such as altcoins. This gives you the freedom to decide what you want to invest in and how you’d like to diversify your portfolio.
Regulation
Stocks are regulated by national agencies such as the Securities and Exchanges Commission (SEC) in the US or The United Kingdom Financial Conduct Authority. These agencies regulate and oversee stocks and stock markets to ensure transparency is a practice by publicly traded companies.
Being regulated by a government body may provide some comfort and security that fraud will be kept at a minimum. It’s a safety net for investors to ensure they’re not investing in unregulated stocks.
Cryptocurrencies, however, are still largely unregulated.
Cryptocurrencies are operated by decentralized networks with individuals that are focusing on maintaining their technology and maintaining the integrity of the currency. This may be a preference to some investors who aren’t so keen on government regulation and prefer to operate on an independent basis.
President Joe Biden’s budget proposal for 2022 includes cryptocurrency reporting requirements. If the proposal goes through, it will be the first step to regulating cryptocurrencies in the US.
Some countries including Singapore and Mexico have already set up laws and regulations surrounding the use and trade of cryptocurrencies and blockchain.
Uncertainty in the pandemic and how the market will react to it, especially with the new variant is something investors will be concerned about. Stock growth hasn’t been as dramatic as cryptocurrency, but it’s seen better days following the pandemic.
Both markets will continue growing with cryptocurrency expecting to be bullish by the end of 2021, bleeding into 2022.
It’s important to do your research no matter which option you choose. You should research the stock’s financials and find out which digital currency is suits you better before making your decision.