It’s 24/7 pure horror: The difference between the crypto and the stock market for newbies

Reddit user homrqt wondered which type of investing is more stressful — cryptocurrencies or stocks. In fact, the primary purpose of crypto trading is similar to that of trading stocks: both are used to make money. However, there are also many differences between these ways of increasing one’s wealth, including those related to psychological aspects such as stress and involvement level. What are the gaps, and what do newbie investors prefer?

Stocks VS Cryptocurrencies

The main sign of the cryptocurrency market is super-high volatility. The same asset can rise by 100% and then fall by 150%.

Cryptocurrencies are the first market where there is almost no institutional capital, and this, in turn, generates volatility.

According to the experts, volatility is created by several factors: private investors have a higher rate of return on capital, the terms of capital placement are shorter, and the competence of participants is lower.

Investments in cryptocurrencies are not yet fully regulated because there are many new mechanics in this segment, and the audience is from different parts of the world. Asset prices are susceptible to investor sentiment, as no clear set of rules for the market has been established.

Stock investments also involve volatility, but these price swings are not comparable to cryptocurrency values and are pretty predictable by market analysts.

In digital assets, the price is formed according to the classical supply and demand balance model because the number of the same bitcoins is limited. By regulating the number of bitcoins in circulation, it is possible to form the price.

The price in traditional markets is formed by many factors: forecasts from analytical agencies, companies’ financial indicators, ratings, government regulation, news background, and other dependencies.

And unlike cryptocurrency, investing in stocks involves different valuation methods. 

• P/E ratio. The P/E ratio is calculated by dividing the market value of a stock by its earnings per share. Thus, a P/E of 20 means that an investor is willing to pay 20 times the annual payments due on security.
• Per share NAV. Net Asset Value (NAV) measures a company’s value.
• DCF. The Discounted Cash Flow (DCF) model. A valuation that projects a company’s total earnings over a given period and in cash terms at current rates. The asset is considered attractive if the resulting valuation is higher than the current security price.

Unfortunately, none of these models works with cryptocurrencies yet, as they are all based on financial reports and forecasts of public companies. And cryptocurrency startups are not obliged to publish their results and projections. Thus, the necessary data to evaluate the asset is unavailable. However, even if such information is available, one should understand that cryptocurrency does not give its owners any rights to the company’s assets.

What is more stressful and exciting?

Cryptocurrencies used to be considered nonsense by big investors, but since then, the digital assets market has grown, capturing the attention of even the most inveterate skeptics. Now the camp is divided, with some experts expecting the cryptocurrency market to be valuable to traditional financial markets. In contrast, others fear that cryptocurrencies could crash and pull the rest of the market with them. Both options are not comforting and stressful enough, but until that happens, investors have the opportunity to trade in both the crypto market and the stock market.

The author trades in both markets. However, according to him, the market for digital assets captures him more. Thus, he thinks about cryptocurrencies every 30 minutes, all day, every day, and the main reason is that this market attracts him from a conceptual point of view.

He still believes, despite the crypto crash, that cryptocurrencies are something that will help him get rich in the shortest possible time. What clearly cannot be said about the stock market where trading is relatively calm most of the time and to earn a large enough amount of money, you can wait for years, but never wait.

Many other investors agree with homrqt and find the crypto market more interesting to trade. They justify their choice with the following reasons:

• because of killing volatility;
• crypto market doesn’t close; it’s 24/7 pure horror;
• some stocks go down way more than crypto, but crypto always comes back;
• overestimating short term;
• underestimating long term;
• holding stocks after investing in crypto is boring; people freak out over a 5% loss, and in the digital assets market, it’s like those are rookie numbers.

The main fear in both cases is the possibility of losing money, so experts advise investing only as much as you are ready to lose. As for cryptocurrencies, it turns out that despite the current difficulties in the market, some investors have 100% of their savings in crypto.