Stocks have been behind the value in world markets for decades. When business is good, stocks go up. When business is bad, stocks go down. All stocks are backed by legislative bodies and are incorporated in countries that police them. There are all types of stocks from low risk to high risk. Some even have what we call a dividend. This is a payment paid to the owner of the stock on a quarterly basic based on earnings. We can also invest in bonds and credit, much lower forms of return with much less risk. For the longest time these have been the primary drawers of our investment funds. Nothing else has disrupted this investment space for several years. Until now.
The cryptocurrency world has joined the big leagues from an investing standpoint. The total value of the market has surpassed the half a trillion dollar mark. This largely stems from the insatiable demand from the public for change in regulations in security and currency. We are seeing both institutional investors and new investors alike flock to the currencies, with the space growing up to include so much more than just bitcoin.
Even though Cryptocurrency may mimic many of the charts, technologies, and even applications used by investment family members like stocks and bonds, it is important to remember that the worlds are completely different. Stocks are company assets, crypto a currency without regulation, and they do not go hand in hand from a risk threshold. Unless of course your stock is connected to crypto. We’ll cover who happened to company tickers like TXID, GROW, DPOW, and others in subsequent articles.
At the end of the day, ICO’s and IPO’s couldn’t be more different, and that is why we are beginning to see FBI and IRS activity towards cryptocurrency. Much less goes into constructing a coin and offering it to investors than will ever go into taking a stock live on the NASDAQ. Let’s dig deeper.
Shares against Tokens
The fundamental difference between the stock market and the cryptocurrency trading industry stems from the fact that its real fractional portions of companies get sold and bought on the stock markets. These companies have documented assets and are governed by law. Cryptocurrency markets trade in abstract digital currencies of which value is driven by the sheer volume of demand, rather than any physical assets or other tangible indices. The stock trade is a well-established market with history and comprehensive legal frameworks and legislation. The cryptocurrency markets are rather new and, as of now, there is little legal framework under which they operate despite amassing very huge values.
There’s a reason why bitcoin is hovering around $10,000 here at the end of January, and it’s largely because investors are fearful of what legislation could do to the space. Furthermore, they have no idea what it would look like.
The cryptocurrency industry is claimed to be anarchist in its make by some. The digital coins are not issued by any government and they move fluidly across borders in seconds. There is little to no consequences for those issuing them, and they can be used for illicit and illegal behavior, especially those including large scale drug deals.
On the opposite side, the stock market has a very sophisticated set of rules and even sub-governing bodies underneath the state government. The NYSE and NASDAQ and DOW are great examples of restrictions in the space. If you’ve ever been on a hot swing stock and seen a pump and dump halt-based pattern, you know exactly what I’m talking about. There are rules to try to avoid stock fraud and massive losses, even though they aren’t always perfect. In Crypto, there is no such thing. This is largely where I feel a lot of Tulip mania comparisons come from. With no governing body, a rapid increase in value cannot protect buyers who buy at the top of value and lose all that value before they can sell. There are no market anchors or true equity, which is what makes Crypto Currency scary from an investment point of view.
The new 24 Hour Trade Window
We cover Robinhood and their jump into the Cryptocurrency space here. One of the most visual things we could ever show you about Robinhood is their different trade windows. To summarize Robinhood, it is a digital exchange that brokers both crypto currency trades and stock and equities trades free of charge! The cool thing about this is that Robinhood was faced with a choice around presentation of product, and man did they win out in every single aspect. The classic stock aspect of Robinhood can be seen in the blow image. You can see how when trading is live the background is white to reflect daytime. For after hours, Robinhood changes to black with green (or red if you’re losing money. Robinhood has normal trading hours Monday through Friday from 9:30AM EST to 4:00 PM EST. Fun fact, you’re limited to four day trades per week on Robinhood. That’s how they’re able to sustain commission and fee free trading.
In the crypto coin space, Robinhood has changed their look and feel entirely from stock and taken on TRON imagery and undertones. This is largely because stocks and cryptocurrency are so different in when they can be traded time.
The clock never stops for cryptocurrency, and a common pastime of traders is staying up late to try and get the best prices during an Asia sell off or US based sell off when you’re looking at it from the other angle. The game never shuts down. I find this to be a funny trait of cryptocurrency. Many would compare Bitcoin and Ethereum to gambling, where Casinos are also open 24/7. The irony.
Trading and Incremental Flexibility
The fractional nature of investments is something that is quite unique to cryptocurrency. From a scalability standpoint, this allows it to shine over stocks as it doesn’t restrict smaller bankrolled investors. One of the terms we here constantly with the stock market today is “overcharged.” In nut shell, the value of stock prices is too high for what are considered to be premium investor stocks. Jim Craemer, who you can read more about here, has made the term FANG famous as an acronym representing Facebook, Apple, NVIDA or Netflix, and Google. All of these stocks are considered top notch and expensive to invest in. Google in particular costs around $1000 per share which is too steap for many median households with incomes in the USA just over $65,000 on average.
Similar prices can be seen in the cryptocurrency space, but these prices are not a problem as you can still incrementally invest. Want to buy .0000275 bitcoins? It sounds ridiculous to contemporary thought, but be our guest. They could be worth millions someday!
Volatility of Stocks and Cryptocurrency
The final difference between the stock exchange and the cryptocurrency exchange is the volatility they experience as investments. One of the reasons bitcoin is so attractive to novice investors is its meteoric rise. People want to know how they can make 1000% returns in months. It’s only natural. But it’s important to remember that such results historically have been highly improbable! What can go up 1000% in a month can also go down 1000% in a month. From an investment perspective, all cryptocurrency is considered highly speculative. We don’t know what it’s going to be or be used for yet. We’re dealing with pricing a concept that may never be, but it could also change everything. That in itself is going to be tough to consistently price
Stock exchanges are more balanced than cryptocurrency markets when it comes to volatility. The stock market does have its volatile moments, but it’s usually much more concrete in being caused by a major political situations. These include wars, trade wars, destabilizations, and treaties, all of which can cause volatility spikes and VIX hedges. The market acts much more like a grocery store though. It has lots of selection and the best cart has a little bit of everything. The term “balancing my portfolio” comes from curating a mix of high and low risk assets based on risk appetite.
Our top Exchange Picks are below! Please remember you can trade RobinHood for both Crypto and Stocks, but Coinmama is only available for crypto trading.
Best of luck out there!
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