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Stock market vs crypto market

The crypto market is very popular for beginners and professionals because it’s very volatile meaning high risks and high rewards. As most people want to make profits sooner than later, they try their luck in the crypto market. There are many cases of people making huge amounts of profits in very short timeframes (<1 year).  But even more people lose their money even more quickly. 

Reading time: 4-6 minutes (1.060 words)

Key Concepts in this chapter:

  • The stock market and crypto market are completely different markets.
  • You can apply the same trading or investing principles to both markets but never blindly exchange them.
  • Crypto is very volatile and much more riskier than the stock market.
  • The stock market is very boring compared to the crypto market.
  • Crypto exchanges and brokers are much faster, have more options and work better allround.

The main difference between stocks and crypto is the volatility and ownership. 

Quest: Volatility
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What is volatility?

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If you buy a stock from a company, you now own a very small piece of that company. If you buy bitcoin, you own (a piece of) bitcoin. Bitcoin is not a company and is not owned by anyone. Bitcoin is a completely decentralized network without an owner and regulation. But there are many other cryptocurrencies you can buy. Each with their own specific set of rules. While bitcoin is not owned by anyone, there are many coins that are owned  and ruled by companies.

Quest: Owning cryptocurrencies
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If you buy a cryptocurrency, you are only 100% the owner if:

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As far as excitement goes, the crypto market performs much better in that area. Most regular stocks hardly move on a daily basis. The most exciting jump you will see is a 10% increase or decrease and that will happen only on very rare occasions. And that will only happen when you are handpicking your own stocks. When running a portfolio on autopilot (like ETFs), basically nothing exciting happens ever. ETFs are a collection of many stocks so you will always see average returns. Both markets should be treated with emotional care.

  • Stock market: Be patient
  • Crypto market: Beware of scams and losing money quickly

The stock market can be very boring. An intelligent investor is patient and knows that the best holding period for any stock is forever. Followed by a lifetime, thirty years, twenty years, ten years, five years up to at least one year. The best results in the stock market are made over long periods of time (>10 years). For one, this might sound just like what they need. For others, this sounds boring and these people are eventually starting to make unnecessary trades and take unnecessary risks. 

Patiently waiting many years before you can reap rewards sounds very daunting. And this is one of the many emotional decisions an investor must make. It is actually very hard to do nothing because markets are going up and down all the time. And everytime you are looking at the charts you start to think:

  • Should I buy now?
  • Should I buy more?
  • Should I sell?
  • This is going down fast, I need to get out…
  • This is going up fast, I need to get in…

Quest: What to do when prices are moving
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What would be the best approach in general if you don’t know what to do when prices are moving?

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As you can imagine you will be arguing with yourself about what you should do next. If you are in for the long term, you should probably do nothing at all. Decisions based on emotions from an inexperienced trader will definitely result in a loss in the long term. And if you simply don’t know what to do, do nothing. If you look at the bigger collapses in the market in the last twenty years you can see that prices always went back up in the long term. This may not be the case in the future but the probability of it will rise the longer you are in the market. Just look at the S&P500 price from the last fourty years, it only went up:

S&P 500 data, Source: Google

The crypto market is a breath of fresh air in that regard. Coins jumping up and down, sometimes hundreds of percentages in just a single day. The downside is that you can lose money pretty fast. And most people lose money because they are too excited about profits and forgetting what they are actually doing. You can’t expect profits without a decent trading plan. Actually most people don’t even have a plan and just buy some random crypto’s at a random price. They think they know what they are doing because they are making profits. But that is obvious when you are in a bull market.

Quest: Bull market
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What is a bull market?

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5.1 Regulations

Quest: Regulations
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Are cryptocurrencies regulated?

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Basically everyone can make their own cryptocurrency and start promoting it. The crypto market is full of scams. If you want to invest in something, you must know the industry. If you have no clue what cryptocurrency is you should:

  • Stay far away from crypto or:
  • Take the time to learn everything about crypto

If you lose your coins because of a scam or you did a bad transaction, for example sending Ethereum coins to a Bitcoin wallet, your money and coins are lost forever. The chances you get your coins or money back are very slim. That does not mean crypto is not safe to use. It's simply not regulated so you can't ask anyone for help to get your money back if something went wrong. Also, new coins are not checked by law or anything to check if they are legit. 

Quest: Paying taxes
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If cryptocurrencies are not regulated, do you have to pay taxes?

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Although crypto currencies are not regulated (by the time of writing, 2021) you do have to pay taxes. But as time moves forward, many crypto exchanges require you to upload your ID before you can start trading. And depending on the country you live in, there may be regulations that require you to show certain information or even forbid owning cryptocurrencies. Stocks and regular exchanges are heavily regulated. Companies need to deposit valid and true income statements at the SEC (Securities and Exchange Commision) as required by law. 

5.2 Storing your assets

When you buy stocks, the company and broker keep track of ownership. Your stocks are stored at the broker and it's almost 100% safe (depending on the broker). You can also store cryptocurrencies at your broker but that is not safe at all.  You are never the true owner of your coins when they are stashed at an exchange/broker because you don’t have the private keys. So it's better to store your coin in your own wallet.

Quest: Storing cryptocurrencies at an exchange
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Why do many traders save their cryptocurrencies at an exchange or broker while they don’t have the private keys of these wallets?

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5.3 Exchanges and brokers

You need exchanges and/or brokers to trade stocks and cryptocurrencies. In that regard, cryptocurrency brokers and exchanges are a complete breath of fresh air. Most well known crypto exchanges and brokers are very high tech compared to the exchanges and brokers in the regular stock markets. You have more options, things are much more clear, faster, more intuitive and just work better all around. When you trade cryptocurrencies for a few years and then try regular brokers and exchanges in the stock market it feels like going from Windows 10 to Windows 98. 

Quest: Pricing of exchanges
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Who determines the price of the traded security when using an exchange”?

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While a broker is needed to buy stocks, a broker is not needed to buy cryptocurrencies. As an individual, it's not possible to create an account at a regular stock exchange (like the New York Stock Exchange). In this case you need a broker that will send your buy/sell instructions to the exchange. While in the crypto market, you can create an account at an exchange and start trading with other people without the need of a broker. 

In general, a broker acts as a middleman. But a broker can also offer its own services and assets. In that case, the broker determines the price of the traded asset based on market conditions. 

The differences between crypto and the regular stock market are huge. You can apply the same trading or investing principles to both markets. But you can never blindly copy a strategy that works on the crypto market to the stock market or the other way around. You need to understand both markets before you can make the right decisions. I created several in-depth guides and articles about everything you need to know about crypto. You can find the link in the last chapter. The reason I don't post it right away is because I want to encourage you to read every chapter in this guide before you go in-depth.


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