The cryptocurrency market is always being compared to the stock market as if they are the same thing. In the midst of 2017 of ICOs, a lot of people considered that cryptocurrency and stock markets were the same thing. They assumed that ICOs were just a new way of penny stocks. While there are some similarities such as the prices are determined by demand. However, there are some differences between them and here are 6 differences:
Cryptocurrencies are highly volatile compared to the traditional stock market. The volatility of cryptocurrency is large. Cryptocurrency, unlike the stock market, has no intrinsic or tangible value. The only cryptocurrency that could have somewhat of a tangible value would be Ethereum, since it is a blockchain of a smart contract for other platforms. The cryptocurrency market is also easily manipulatable while the stock market can’t be as easily manipulated. This causes the market to fluctuate. A coin could easily increase or decrease 100x its initial value.
The value of coins change every minute, every hour, and everyday. Since cryptocurrencies are peer to peer because of the network, this means that they could be traded by any 2 individuals anytime of the day. Cryptocurrency exchanges also work 24/7 for the market with maintenance breaks as an exception.
Security Insurance by Securities Investor Protection Corporation, SIPC
SIPC protects cash stored in a brokerage up to $500,000 and every stock trader in the US is required by law to buy security insurance. In the cryptocurrency world, exchanges are not required to carry security insurance. The only cryptocurrency exchanges that offer security insurance on deposits are Gemini and Coinbase for cash deposits.
All the cryptocurrency exchanges have a slight price mismatch throughout from Poloniex to Okex because there is no centralized agent that guarantees the limit orders to not be filled with the worst price, compared to the best offers across all exchanges. Therefore, the best bid in cryptocurrency is never stable. This is why it is the trader’s job to find the best exchange to trade with.
User Base and Revenue
There is no such thing for most of the coins! Most of the coins’ prices are strictly due to speculations. They are not real companies with user base, revenue, or assets. For example, Dogecoin was created as a joke but the value increased since its inception due to speculation. Almost all the stocks in the market are backed by real companies with real user base and revenue.
Cryptocurrency trading requires the investors to store the coins themselves and sometimes, these assets are really vulnerable because new traders are unsure on how to secure their storage. Hackers have stolen about 14% of cryptocurrency supplies. Also, there are a lot of investors who lose their key to their storage. If the user’s cryptocurrency is stolen or lost, there is almost no chance of recovering it. In the stock market, most of hacked assets could still be recovered.
Despite the differences, cryptocurrency and stock trading are both great ways to make money. Make sure to keep in mind on the key differences between them.
lllustrations by Marina Demchenko (Mamihlapinatana Studio)