Bitcoin was the buzzword of 2017. Unless you were living under a rock, you are certain to have come across some news relating to Bitcoins. The sudden boom in Bitcoin prices made it a topic of everyday discussion – a household name. The Bitcoin stock was on the rise for most of the year! Everyone from your good ol’ neighbor to your colleagues at your workplace were abuzz about this a Bitcoin fever hit its peak and prices crossed $19000.
For many, Bitcoins were a quick and easy way to make money. For others, it was a technology which they heavily invested in. There were many who watched from afar – waiting for a price dip to enter. Regardless of which category you may fit in, there are many questions which tend to confuse people about Bitcoins. New investors are often confused about this crazy new technology they are putting their money in.
What is Bitcoin Stock?
Technically speaking, Bitcoin is a cryptocurrency. It is a virtual token that carries monetary value and can be traded in exchange of goods and services. It is basically digital money. However, unlike traditional money (fiat currency), it is not backed by a banking system and does not have a governing body to regulate prices. The prices are purely determined by demand, supply and market sentiment.
Is Bitcoin a Stock?
When you hear about the concept of Bitcoins for the first time – you can confuse it with stocks. There are many elements which are similar. However there are many similarities as well as differences between Bitcoins and stock market commodities.
The stock market has, for centuries, been a viable trading option. Till as late as 2017, it was never really challenged by any other investment method. Stock markets were considered to be a means to earn quick money as opposed to bank interests, bonds and other interest based investments. However, the rise in cryptocurrency over the past year have had many users invest money into the crypto markets.
The bitcoin stock is on the rise, but does that spell doom for the stock market? Let us take a look at some of the similarities and differences between cryptocurrencies and the stock market:
Similarities between Bitcoins and Stock Market
Demand and Supply: Similar to stocks, Bitcoin carries a value which changes with demand and supply. If enough people buy a stock, it rises in value. If a large number of people sell their stock, it falls in value. Same is the case with cryptocurrencies. If a significant number of people decide to invest in a particular cryptocurrency, it will witness a surge in its price. Same happens when people sell cryptocurrencies and the price falls.
Market Sentiments: Moreover, similar to stock markets – Bitcoin prices are governed not only by demand and supply, but also by market sentiments. A political crisis in the middle east can cause many international stocks to rise or fall! Similarly, a crisis in China can affect the global rates of cryptocurrencies! This is another similarity between stocks and cryptocurrencies.
Exchanges: Another thing which is common between the stock markets and cryptocurrencies is the fact that both of them have ‘exchanges’ where investors can buy them from. Stock exchanges allow traders to buy various stocks. Similarly in a cryptocurrency exchange, you can buy your favorite cryptocurrencies in exchange for money.
Initial Offering: When a company decides to go public and listed on the stock exchange, they start with an IPO – an Initial Public Offering where they raise money from public investors on a lottery basis. Similarly, ICOs (Initial Coin Offering) too are means of gathering money from public investors and are allotted on a lottery basis.
Differences Between Bitcoins and Stock Market
While there are some similarities between Bitcoins and the stock markets, there are a number of differences too. Let us take a look at some of the major differences:
Decentralized: First off, stock exchanges have a regulatory body which overlooks each stock that is registered with the exchange. While they do not regulate the prices – but they ensure that all trading is done in fairness and markets are not manipulated easily. These are government-backed agencies which regulate the stock markets. Bitcoins function on a decentralized platform. There is no such regulating, governing body when it comes to Bitcoins.
Open Ledger: Another governing principle of all cryptocurrencies is the fact that they are based on an open ledger. All transactions that happen on a blockchain network are public and visible to everyone. You can see which wallet address transferred what amount. However, there is no way of identifying who that address belongs to.
Supply: One of the biggest differences between Bitcoins and stock markets is the fact that while stocks can be unlimited in supply, Bitcoins are capped at 21 Million. Similar caps are present on most other cryptocurrencies as well – which are limited in supply. This limited availability of Bitcoins ensures that the demand is always more than the supply.
Exchange System: When it comes to cryptocurrency exchanges, most exchanges allow you to trade your Bitcoins for other currencies such as Litecoin or Ethereum, etc. However, such a thing is not possible when it comes to stock markets. You can only buy stocks and sell them – but you cannot trade them for other stocks.
Privacy: Stock markets in almost all countries require setting up of accounts with authorized agencies which allow you to easily invest in IPOs and buy and sell shares. However, when it comes to Bitcoins and other cryptocurrencies, you can simply buy them off the exchanges or other marketplaces which sell Bitcoins. In many cases you don'[t even need to provide your private details! Anonymity is high when it comes to Bitcoins.
Means of Payment: Bitcoins carry a monetary value and are an actual currency. In comparison, while stocks too carry a value – they are not tokens of payment and do not have acceptability as a mode of payment. Basically, you can pay Bitcoins to get products or services – but you cannot pay in shares to buy stuff.
Should You Invest in Stocks or in Bitcoin?
Stocks have been a traditional source of investment for hundreds of years now. The markets have matured with time and every year there are some stocks which give massive returns. The best-performing stocks, collectively known as FANG – are basically Facebook, Amazon, Netflix and Google. In the past five years, Amazon’s stocks have grown by over 340%, Netflix by over 1000% and Google almost by 150%.
However, when you compare these FANG stocks to cryptocurrencies – the Bitcoin market in itself has grown by over 20,000% in five years. If you think five years is too long a time, Ripple, another cryptocurrency similar to Bitcoin has grown by over 36,000% in just one year!
Cryptocurrencies offer a faster ROI because of the fact that this is a new and more bullish market compared to stocks. Numerous predictions have pointed that Bitcoin prices are expected to grow to as much as $25,000 in the short run and over $100,000 in the years to follow. As absurd as these numbers sound, even $5,000 sounded like a far-fetched figure till this time last year!
Bitcoins are indeed more volatile than stocks too. A rise or a fall of over $1000 a day has become common these days, with prices fluctuating rapidly. Stocks are considered to be more stable. However, there have been incidents in stock market crashes too, but they are quite rare. Risk is high, but so is reward! If it suits your risk vs reward equation – Bitcoins are indeed a good investment option for you. The Bitcoin stock is indeed rising, but traditional investors who’d rather play safe should continue with the stock market.