Are Cryptocurrencies Replacing Stocks? All You Need to Know
Cryptocurrencies are occupying a bigger space in the communication channels related to investments. As more and more people are verifying their identities on cryptocurrency exchanges to start investing their money in them, some people on the other hand are feeling concerned about their investments in stocks. Stocks have been traditional investment assets since 1792 whereas cryptocurrencies emerged only in 2009. Despite the consistent popularity of stocks, people have recently started turning to cryptocurrencies for their investments. So, are cryptocurrencies replacing stocks? Let’s see!
What are Cryptocurrencies?
Cryptocurrencies are digital or virtual currencies that are secured by cryptography and hence, almost impossible to counterfeit. These are decentralized networks that are stored on blockchains. The most important feature that sets cryptocurrencies apart from fiat currency is that there is no centralized body that issues them. Therefore, cryptocurrencies have no effect on changing government policies on them. Also, the decentralized features of cryptocurrencies make them impossible to be manipulated in any manner.
Pros of Cryptocurrencies
- Cryptocurrencies eliminate the need for intermediaries such as banks, monetary institutions, or any other third party for enforcing the trust and security of funds.
- Without the involvement of any third parties, cryptocurrencies ensure that there is no scope of failure in the transactions or delay in the payments.
- Cryptocurrencies facilitate the transactions between two parties without the need for any third party to execute the contract between them. This also eliminates the extra fees that are usually charged by banks to execute the transactions.
- The transactions based on cryptocurrencies are faster and more secure than the traditional ones.
- They stream the process of cross-border payments without incurring an extra fee.
- Crypto investments can generate very high profits. Bitcoin, one of the most popular cryptocurrencies, has increased in its value by 1000% over the last three years.
- The Crypto market is open 24X7. Therefore, the crypto investors don’t have to wait for any minute to take their investment actions:
Cons of Cryptocurrencies
- Even though cryptocurrencies offer decentralized transactions, they may leave a digital trait that can easily be identified by financial authorities like the Federal Bureau of Investigation.
- Cryptocurrencies have highlighted an increased possibility of ransomware activities, money laundering, and other wrongful purchases.
- Some studies have found that even though cryptocurrencies were meant to be decentralized and offer equal opportunities to the people to mine them, they are largely concentrated among the leading companies in the world. This is because of the tedious mining procedure for the best cryptocurrencies.
- Since cryptocurrencies are backed by blockchains that are distributed across a network of computers, it is very easy for hackers to hack the crypto wallets and steal coins worth millions.
- Due to the lack of public trust in cryptocurrencies and the immature nature of the crypto market, the prices of cryptocurrencies are highly volatile. This means that if cryptocurrencies can yield profits to the users, on one hand, they are equally risky and likely to make investors suffer from losses on the other.
What are Stocks?
Stocks, also popularly known as equity funds, are basically security that represents the fractions of the ownership of a company or an organization. When a person owns a stock of a company, they hold some proportions of the assets owned by the company and the profits based on the number of stocks owned by the shareholder. Investors can buy and sell stocks via stock exchanges which occupy a big chunk of the portfolios of many investors in the world.
Pros of Stocks
- Stocks have a high potential of increasing in value over time and payout dividends to the investors on a regular basis. There are many people who do stock marketing as a full-time business.
- Investing in stocks can help minimize taxes. This happens when an investor borrows money to buy shares but the dividends earned are less than the interests earned on the stocks.
- Stocks have been there since the late 18th century which means that there are abundant choices for stocks when it comes to investing. In addition to this, almost each and every company out there is having their shares on stock exchanges. This offers investors a lot of choices.
- When it comes to investment assets, stocks are the easiest option as buying and selling stocks is just a tap away on the phone.
Cons of Stocks
- As there is a lot of choice among stocks, it may become difficult for investors to choose the right stock to invest in.
- Stock markets are open only on working days so the investors may feel stuck if they want to buy or sell their stocks on holidays or Sundays.
- Stock markets charge a fee whenever investors sell or buy new stock.
Are Cryptocurrencies Replacing Stocks?
Considering the factors mentioned above, we can not say that cryptocurrencies are replacing stocks. There are many reasons for this conclusion. Cryptocurrencies are still new in the world. Even though they came into existence in 2009, they have gained so much popularity in the developing countries only a few years ago.
On the other hand, stocks have been there and have been the most preferred option for investors around the world. However, none of these two investment options can replace each other because they have their own pros and cons attached to them. If cryptocurrencies yield better returns in a short amount of time when compared to stocks, there is an equal probability of investors bearing losses in crypto.
On the opposite end, stock markets may generate only fair amounts of returns, they do not fall down so quickly as in the case of cryptocurrencies. Most importantly, investors are always looking to diversify their investment portfolios by investing their money in different types of assets. So, both cryptocurrencies, as well as stocks, will occupy some space in the investment portfolios of investors around the world.
Conclusion: Are Cryptocurrencies Replacing Stocks?
Cryptocurrencies may be getting significant limelight on the stage of investments, but they are replacing stocks at least in the near future. So, if you are feeling confused about choosing between these two investment options, it is best to devote some amount of your investment (5-10%) to cryptocurrencies and the remaining share of investments in traditional stocks.