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We have been very aware of the word ‘stocks’ or ‘shares’ or ‘stock exchange’ etc for a long time but recently a new thing came into being which is “cryptocurrency”.
Cryptocurrency has dominated the globe in the last six months. It has become a major talking point after risking the value by 450%.
The cryptocurrency affected the stocks very much but before claiming that it has affected the stock market we should understand what is crypto and stock and the difference between the two.
Starting with the introduction,
What is the crypto exchange?
Cryptocurrency exchanges are websites where individuals can buy or sell or exchange cryptocurrencies for other digital currency and traditional currency.
What is the stock exchange?
The stock exchange is a place where shares of publicly listed companies are traded. A stock exchange facilitates stock brokers to trade company stocks and other securities.
Difference between the crypto market and stock market :
- Crypto has reputation for drastic changes in value whereas, Stocks are linked to the company directly that must share or show how they’ve been doing and how they expect to do in the future.
- The US Securities and exchanges commission has authority over the entire stock market whereas, there is no central authority regulating the crypto market.
- The Crypto market works 24/7, 365 days whereas, the stock market works from Monday-Friday and takes designated leaves.
- Stock exchange trade-in company shares and stocks whereas, cryptocurrency exchange-traded in cryptocurrencies such Bitcoin, ethereum, etc.
Why does cryptocurrency have an advantage over the stock market?
Cryptocurrencies have several advantages over the stock markets:-
Cryptocurrencies are much easier to own compared to stocks –
- There are plenty of ways to trade crypto assets. Non-custodial exchanges are becoming more common nowadays.
- In a very short time, we can transfer assets from exchanges to private wallets. The process is very fast.
Ownership of cryptocurrency is quite easy to have –
- There are very few legal recourses for cryptocurrency investors.
- There is an insane amount of volatility in the crypto market.
- Stocks after being created have to be cleared by government agencies.
- Anyone can make cryptocurrencies but stocks are needed to be issued by special groups.
Working time –
- Cryptocurrency can be traded at any time and on any day, regardless of public holidays and major events but the stock exchange doesn’t.
- It works only 5 days a week.
- The stock exchange has grown to be a heavily regulated marketplace. While cryptocurrency does not. The cost associated with traversing the stock exchange is high. Brokers also charge high fees or commissions.
- cryptocurrency exchanges are comparatively free from regulation. It incurs lower costs when buying and selling cryptocurrencies than brokers for stock exchanges.
- Anonymity is the most important advantage of cryptocurrency.
- There is no need to reveal your name or identity.
- Cryptocurrency is not affected by the actions of the government such as inflation, demonetization, etc.
You are in charge –
- No one can take your money away from you until and unless you lose it yourself.
The volume of trade –
- Stock exchanges have high volumes of trade. Therefore it can be a negative point for smaller investors because the stock market rewards big investors with the commission on trades or with lower fees.
- A cryptocurrency exchange is still in the process of development. The volume and diversity of cryptocurrencies being traded are also far less than that of the stock exchange.
Market reach –
- In the stock market, you have to find a broker yourself and after that, you’ll need the approval to buy and sell. Access to the stock market is controlled.
- Cryptocurrency is much more accessible to people of all social standings in comparison to stocks. Anybody can trade in cryptocurrencies.
Effects of cryptocurrency on the stock market :
The value of cryptocurrency is subjective because it is a digital currency. Cryptocurrency has a capped number of tokens or coins therefore the value of capped cryptocurrencies would increase as demand for them grows.
Cryptocurrency having so many advantages including its ownership, anonymity, market reach, regulation cost, etc over stocks pose a problem to the stock market.
There is some evidence that cryptocurrency does have a wider impact on the stock market.
For example, Tesla’s share price rose 2% after the announcement that they would invest in bitcoin, but it has since fallen by 5%.
The stock of Tesla dropped 4.42 percent to close $589.89 on Nasdaq.
Tesla’s stock is now ‘heavily tied’ to the fate of bitcoin after the company’s $1.5 billion purchase as its stock has dropped by 21 percent after the announcement in February.
The stock market will also be affected because of the self-sufficiency of cryptocurrency. Investors are avoiding the flat money and running to bitcoin and other cryptocurrencies.
If cryptocurrency continues to appreciate, the companies will experience an incursion of huge amounts of purchases of their stocks as in the case of Tesla.