Discussions about cryptocurrencies and stocks often get intertwined because of their relationship to financial businesses and trends, however, they are not as similar as many tend to believe. In fact, there is a large difference between the two subjects and it is important to understand what sets them apart to avoid investment pitfalls when comparing crypto versus stocks.

First, we’ll look at the advantages of cryptocurrency, based on the benefits provided by decentralization and transparency. Then we’ll look at the disadvantages of the traditional stock market before comparing the two to understand the reasons why cryptocurrency is better than stocks. 

Note: Cryptocurrencies perform vastly differently than stocks do and are not always the superior choice. This article is meant to detail which aspects of cryptocurrency have the potential to be better than stocks and is not intended to be financial advice. Always make sure to do your own research before investing in cryptocurrencies and stocks. 

Advantages of investing in cryptocurrency

One of the most alluring appeals of cryptocurrency is its seemingly miraculous ability to create massive ROIs within extremely short periods. Memecoins such as Dogecoin and Shiba Inu have become infamous for their sudden rise in market cap which caused many investors to become millionaires overnight. 

However, it’s important to recognize that Dogecoin and Shiba Inu both started as jokes. Major networks such as Bitcoin and Ethereum have outperformed both memecoins significantly during their lifespans due to their utilization of decentralization.

Decentralization is a term that means no one person or entity is in control of the network meaning that there is no central authority that governs networks like Bitcoin, and in Ethereum’s case the network is governed by the community. This allows cryptocurrencies to be transferable across borders, opening up new financial opportunities for people around the world that do not have access to major stock markets. 

Disadvantages of traditional stocks

The stock market presents many major issues as well that further highlight the benefits of cryptocurrency because of its lack of transparency and strict regulations resulting from massive market manipulation. 

It is no coincidence that bitcoin’s genesis in early 2009 came following one of the worst economic situations in modern American history. The financial crisis of 2008 and Bernie Madoff’s arrest both provided evidence to the public that major financial institutions did not hold the same interests as their customers by manipulating the market and putting many ordinary people’s lives at risk. 

While these issues do exist within the blockchain industry as well with people like Sam Bankman-Fried, Do Kwon, and the founders of Three Arrows Capital all leading the crypto market on a downward trend, the transparency stored on-chain has expedited their exposure and helped legal authorities get involved much quicker than the decades-long Ponzi scheme run by Bernie Madoff. 

Moreover, the GME short squeeze of 2021 provided another example of how central authorities are able to limit the ability for investors to sell their assets; when the Gamestop (GME) stock soared to extreme highs, causing brokerages such as Robinhood to freeze trading of the security and preventing many investors from being able to profit from their investments. 

Comparison of cryptocurrency and stocks

When compared, cryptocurrencies have infamously outperformed the stock market with surges in trade volume leading to massive profits for investors. In 2021, bitcoin became the fastest asset ever to reach a trillion dollar valuation, outperforming companies like Apple, Google, Microsoft, and Amazon. 

However, it is important to understand that cryptocurrencies are not stocks and should not be treated as such. By design, they are digital currencies and have the capability of being used for purchases and remittances as well as investment options. 

Although many brokerages offer their customers the ability to invest in crypto holdings, they don’t actually grant users custodial wallets, which breaks the most important aspect of crypto - not your keys, not your crypto. Cryptocurrencies are a self-custodial asset and if someone else controls your wallet then you are not invested in decentralization.

Conclusion

2023 has started with a lot of optimism as many altcoins have shown significant gains through the first few weeks of January which can lead to a lot of rash financial decisions, but the price patterns in web3 are much less predictable than the stock market and anything can happen. 

Overall, investing in cryptocurrencies can add a significant level of diversification to any portfolio, but must be done so wisely. Sudden price peaks like Dogecoin are not common and are hard to predict, leaving many people at a loss over time; always do due diligence and make an educated decision before investing in cryptocurrencies.