Hello, guys Ozara here. Welcome back to my channel. A lot of you guys have asked me to start from the very basics. So that is what I’ll be doing today. I’ve decided to talk about the stock exchange compared to the cryptocurrency exchange and I’ll be defining most of the jargon that we will be coming across.
So first let’s define a stock also known as equity is a security that represents the ownership of apart of a company or corporation. When someone owns stocks it permits the owner of these stocks to a proportion of the corporation’s assets and profits. The proportion of assets and profits will be depending on and or equal to the amount of stock they own and these stocks are bought predominantly on the stock exchange.
So now let’s define cryptocurrency. Cryptocurrency is a digital currency, where transactions are verified and recorded by a decentralized system using cryptography rather than by a centralized authority. Crypto exchanges set the rate of the currencies for both coins and tokens though many factors affect the rate or price it usually depends on the demands from the buyers or sellers in the market however because exchanges are not connected the prices vary depending on the volume of trades as well as the supply and demand of the users meaning the bigger the exchange the more market-relevant price you get. Basically, cryptocurrency exchanges and regular stock exchanges work similarly.
The difference is that on a stock exchange traders buy and sell assets, shares or derivatives in order to profit from the changing rates. While on cryptocurrency exchanges traders use cryptocurrency pairs to profit from the highly volatile currency rates. The reason I wanted to do a little comparison before anything is because there’s a lot of scepticism surrounding the cryptocurrency exchange most of it coming from people that do really understand it properly.
Which makes sense because compared to the stock market. The cryptocurrency exchange is still a relative niche market. So first let’s compare the very basics and understand how the two markets function. They both operate under the same principles, like most cases prices are determined by demand in both crypto and stock exchanges price goes up when someone pays more than what the previous person has paid likewise the price goes down when someone willing to sell their assets for less.
Both these markets are valued in fiat. Fiat money is the government-issued currency that is only backed by the government that issued it and not by any physical commodities such as gold and silver. While some investors value cryptocurrency in fiat currencies some believe that there shouldn’t be any centralized party that controls cryptocurrency because it defeats the ideals of the decentralized systems.
Logging changes have trading sessions or in other words, specific timeframes when traders can place orders. Some platforms may offer 24-hour access but nonetheless, they’re usually closed during state holidays.
This makes planning especially hard and explains why traders often do not hold any positions between trading sessions closing them and opening them the next day. However, the cryptocurrency exchange is available24/7 and instantly reacts to any events. This means that the traders have fast access almost all the time but also have the risk of missing out on opportunities.
Another thing is that each stock is backed by companies that are expected to make a profit. It’s quite easy to determine a stock’s worth through analysis because you can come up with an intrinsic value based on several factors.
So, when I’m investing into companies I like to give them scores in terms of their financial strength, values and financial returns and if they offer dividends then obviously look at their dividends and buybacks and how profitable they are.
So, for example, when I’m calculating their profitability rank I like to look at ROE, ROA, ROC I don’t know… net margin, operating margin yeah stuff like that. There are a lot of things to look at for each category.
However, it’s always ideal to be there before the hype to increase your profits and to decide whether a cryptocurrency will have hype or not you have to look at its blockchain and choose cryptocurrencies that actually have a roadmap to scalability etc. One of the key differences between the stock and the crypto market is that in the crypto market you are able to recognize and capitalize on trends in the greater market meaning that crypto prices are much more related to one another. As one part of the market hits peaks and values it will likely follow the same trend.
This is used as a big advantage to experience cryptocurrency traders who predict shifts in the market. Strategies such as holding can even be a viable cryptocurrency trading strategy if the market trends operate. Oh, by the way, holding is just cryptocurrency slang uh for “holding on for dear life”.
Do you know how cryptocurrencies are mostly valued based on their reputation? Well, that makes for a very volatile market with extreme highs and lows but still very profitable. By the way, volatility is the statistical measure of the dispersion of the returns for the given security or market index.
A lot of people may fear the crypto market because it is volatile and unpredictable and prone to sudden currency crashes but actually one of crypto biggest appeals is actually how volatile it is compared to the stock market.
Just in a few months, you can double, triple or even quadruple your money and those are numbers that even veterans that work in the stock exchange cannot produce. Those veteran investors who have been in the stock market for years on average yield like a 5% to 15% ROI.
Like to them, a 20% year on your return is already an amazing unreachable achievement However like let’s say if someone invested into bitcoin 12 months ago they would have yielded a return rate of around 107% and I mean the numbers speak for themselves. The biggest misconception of newer investors that volatility directly relates to unpredictability. Which is not true.
There are dozens and dozens of tools that can help you analyze trends and predict whether the price will increase or decrease A lot of the most successful investors have mastered this and are able to capitalize on such tools and then I’ll be talking about the tools that I use later on my channel I guess.
Just in 2020, the cryptocurrency market has witnessed unprecedented growth in its market cap going from 218billion to 300 something billion which is almost like a 37% increase. According to Yahoo Finance as of December 2019, bitcoin has witnessed a 9 million percent return on investment. So basically if you invested a hundred dollars into bitcoin in 2009 that hundred dollars would have been worth like almost three million by the end of 2020.
Not only that but you have to keep in mind that the same growth has been continuing on even though everything that has been happening this year like Covid-19. Meaning that cryptocurrency could be the next big investment opportunity because of its resilience towards like pandemics. Although there’s a stigma that cryptocurrency is purely speculative stock markets as of lately has been exposed to even more uncertainty.
Looking at the market as of now the crypto market has been surging while the stock market has witnessed one of the worst crashes in history and in March of this year the Dow Jones Industrial average dropped six thousand four hundred points or around 26 percent in just four trading days but this shouldn’t throw you off the stock market because something to remember is that a small period of volatility in the stock market is fine because companies won’t just disappear overnight.
So you’ll more than likely be fine in the long run if you just invest into broad-based index funds or like ETFs but as of right now that’s also a stupid decision because it is at an all-time high. Stock investors tend to hold their stocks during times of volatility knowing that these times will smooth it out later because crypto is as widely as unpredictable as it is it’s not always the wisest decision to HODL.
So, as a result, panic selling is more common in the crypto scene and sometimes it’s also advised actually. So is cryptocurrency a long-term investment? I think crypto is much more of a long play than people think or see it as.
The federal reserve or theUnited States Central Bank has printed more than two trillion dollars since the global economic crisis began because of the pandemic and when the Feds print money it makes the price of limited assets like precious metals like gold and silver or cryptocurrencies like bitcoin go up a lot.
So, unlike fiat currencies like euros or us dollars that can pretty much be printed at the will of the government bitcoin has just a supply under 21 million coins and because of that a lot of investors see bitcoin as scarce because it’s limited in quantity and it could increase in value in the future while fiat currencies depreciate.
A lot even see that bitcoin can replace fiat currencies. Personally, I think that is stupid because no country would give up their monetary policy and lose control. It is just not possible Because think about it like how can a country give up their monetary and fiscal policy and let some digital currency determine it? Other like ethereum on the other hand want to serve as a global computing platform.
Ethereum serves as more of a launchpad for decentralized applications or like d-apps meaning that they’re open source so you’re able to see exactly what the code does and how they do it and it is not controlled by a single organization Ethereum is also smart contract savvy that has their terms written directly into their code and can be executed automatically without the use of a third party and these technologies can disrupt massive industries.
Such as real estate, banking and potentially create entirely new markets. I would advise people to invest in crypto but more importantly that they do so smartly. A lot of cryptocurrency sceptics also tend to focus on the popularity boom in 2017 because they believe that more drastic price jumps and falls will happen again but if you remove that period in time the crypto market shows a very strong upward trend and because of this I believe that crypto is a very smart investment.
So to summarize everything is very important to assess your overall portfolio goals and your risk tolerance because weighing risk is very important when you’re deciding to add different assets into your portfolio and I definitely recommend people to add cryptocurrency into their portfolios because cryptocurrencies just have a rate of return that cannot be compared to returns you get on the normal stock exchange.
And yes the crypto exchanges are full of volatility but if you take the time and proper risk management then obviously you can make massive profits. But I don’t know if you’re still afraid of buying cryptocurrencies and you don’t want to risk it there are a lot more ways to profit on this blockchain technology other than just directly investing into cryptocurrencies.
One of these ways could be to buy stocks of companies who are integrating this technology into their company, So for example Square and PayPal are beginning to offer their crypto services to their users.
Which now puts them both into a really good position to benefit from the rising usage of bitcoin and other digital currencies or you can invest into the CME group as they operate one of the largest bitcoin futures exchanges.