Crypto vs. Stocks: Which Is Better?

Stocks and cryptocurrencies are dramatically different investment assets. While both are generally liquid assets that belong in the speculative side of your portfolio, the similarities end there. These are very different types of securities and belong in very different parts of your portfolio. Here’s a summary of these two types of securities. A financial advisor can help you decide whether either or both of these are a good fit for your portfolio.

What Are Stocks?

Stocks represent ownership in a publicly traded company. Each share of stock you buy confers a percentage of ownership in the company itself. You receive this ownership in proportion to the number of shares that a company has issued.

For example, say that XYZ Corp. releases 50% of its ownership in the form of 50 shares of stock. If you buy one of these shares of stock you will literally own 1% of XYZ Corp. (While uncommon, when a company has released more than half of its ownership in the form of stock, it is possible to acquire the firm simply by purchasing enough of its stock.)

An investor can make money by selling their stock shares to other investors. This is known as capital gains, the difference between what you paid for the asset and what you get from selling it. Beyond that, the benefits that you get from owning stock depend entirely on the individual company involved. Stocks can also gain value by paying dividends to their investors, through voting power held by shareholders and by other rights of ownership. Every individual company is different in terms of how (or if) it handles issues like dividends and shareholder voting rights.

What Are Cryptocurrencies?

A cryptocurrency is a purely digital asset. This means that it has no physical component but rather exists only as entries in an online ledger recording ownership. This is, for example as opposed to the U.S. dollar which has both a physical component (you can withdraw and hold a dollar bill) and a digital component (you can own a dollar as nothing more than an entry in your bank account recording that ownership). The individual unit of a cryptocurrency is called a token, in the same way that the individual unit of a stock is called a share.

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Cryptocurrencies come in two main varieties. Some, like the well-known Bitcoin, are intended as pure currencies. They exist only for people to trade, buy and sell. Others, like Ethereum, are what is known as a “utility tokens.” These currencies function as part of a more complex piece of software, although utility tokens are also meant to be bought, sold and traded.

At time of writing there are several thousand different cryptocurrencies in circulation.

Key Differences

For an investor there are critical differences between investing in cryptocurrency and investing in stocks. However, as a threshold matter, it is important to understand that this article is merely a brief introduction to the issue. You could write volumes on the nature of…