Stock and cryptocurrency are fundamentally two distinct types of assets – one has digital value, and the other has real-world/ physical value. Both assets come with their own compelling set of opportunities and risks – investors and traders pick the ideal one that suits their short-term and long-term financial objectives. As an asset class, stocks and cryptocurrencies have their own strengths and weaknesses. The following sections try to explain some of the subtle differences between cryptocurrencies and stocks:
The pronounced differences between cryptocurrency and the stock market
Capital markets and stock exchanges allow investors to trade company stocks and shares. Crypto-exchange allows investors to trade cryptocurrencies, also known as digital assets, such as Bitcoin, Ethereum, Avalanche, and Polygon. In traditional capital markets, the asset purchaser must first open an account with the brokerage firms to conduct future trades. The role of the brokerage firm is to execute trades and hold assets on behalf of investors. But, to access services from brokerage firms, the asset owner needs to disclose personal information (via. the KYC process). Brokerage firms provide an extra security level and comply with the authorities.
The best cryptocurrency wallet not only allows you to just store cryptocurrency assets but allow you to transact anonymously across the web3 ecosystem. In crypto markets, non-custodial hardware (hot) wallets are considered the best cryptocurrency wallet because they provide complete control of the crypto-assets.
The best cryptocurrency wallet doesn’t act like a brokerage firm. The asset owner doesn’t need to adhere to KYC requirements with hardware wallets. The only drawback of the cryptocurrency wallet is that if the asset owner losses the password of the wallet, then they are highly unlikely to retrieve their funds and holdings. Malicious actors pose the biggest threat to crypto-asset owners and custodial wallet service providers.
No matter the asset type or market you pick, volatility is consistent across the board. Caution is the word during the phases of extreme volatility. Market volatility can be stated as positive or negative based on the direction of the asset price – up or down. The volatility and risk elements are always involved in both the asset class – be it stocks or crypto-asset. With both assets, it is next to impossible to accurately time the market or decide when to buy and sell your holdings. Often, in the case of the stock market, a few sets of individuals and institutions, traders and investors, also known as ‘big fish’, cause big movements in the market.
On top of that, the geopolitical situation influences stock market prices. Cryptocurrency markets are relatively more volatile because heavily invested “whale” investors influence the decentralised marketplace. But the giant swings in the crypto markets can lead to potential wins for crypto traders in the short term.
The stock market operates on time constraints. No matter the country, every stock exchange (and its subordinate financial institutions) is open only for regular business hours, i.e., usually 9 am to 4 pm, and regular working business days, i.e., from Monday to Friday – while close on weekends and national holidays.
On the contrary, the cryptocurrency exchange market is operational every hour, every day of the year. The volatile pricing of cryptocurrency and the digital asset is due to the fact that the crypto exchange and the digital asset markets are live (tradable) all the time. On top of that, every crypto asset owner has access to their funds stored in their best cryptocurrency wallet, enabling them to conduct trade wherever and whenever they want.
In the traditional capital market, numerous costs are associated with the transactions executed over the counter and on exchanges. To state a few: The mediators or capital brokers charge a fee or commission for services, plus financial institutions charges for executing payments; on top of that, your capital gains in the stock market are taxed by government authorities.
The costs are relatively high in the stock market. For transactions over the blockchain network, the asset owner only needs to incur the mining fees, also known as gas fees. There might be a cost associated with your preferred storage option; for instance, opting for the best cryptocurrency wallet often comes with a price tag.
Compared to the cost associated with the stock market and brokers, the trade of assets conducted over the crypto exchange relatively incurs low costs because there is no intermediary involved in the decentralized infrastructure.
Legal compliance and regulations
The traditional finance market is heavily regulated. Securities and exchanges regulatory authorities have rules to safeguard traders and investors (both retail and institutional) to make capital markets fair. The rule and regulations help ensure a certain level of transparency in publicly traded organizations.
On the other hand, the cryptocurrency and digital assets exchange market is not so heavily regulated by government authorities yet. Still, there are regulations in place for asset storage platforms such as your best cryptocurrency wallets. As we move forward, there is active support for structured regulatory measures (for the crypto asset) from government authorities. Very soon, rules and regulations will be applied to the emerging cryptocurrency and digital asset marketplace.
Liminal is among the leading enterprises offering institution-grade web3.0 infrastructure, such as a digital asset custodian platform designed to assist organizations with their digital asset self-custody need. With the help of automation, efficiency, operational excellence, and cost optimization feature, Liminal help your business gets an edge over competitors.
Liminal’s digital asset custodian platform services are developed with simplicity in mind because we believe that managing your digital assets should not be intimidating and complex. We have built our digital asset custodian platform services with a security-first approach – so that you can sleep peacefully without worrying about the security of your digital assets and funds. And you also receive expert customer support from our end to resolve challenging technical complications.