Bitcoin and cryptocurrency are some of the most popular investments these days, with many people considering both cryptocurrency and stock investment.  Even Wall Street, the hub of stock trading and traditional investment vehicles, has taken notice. People are talking about initial coin offerings (ICOs) besides the usual initial public offerings (IPOs) that are reminiscent of traditional stock investments.

If you want to invest in crypto or stocks, you need to understand the differences. This will help you make a better decision.

What’s the Difference Between the Two?

Stocks have been around for centuries, while cryptocurrency is still in its early stages, having risen in popularity over the last decade. With stocks, you are investing in a company based on its growth potential. With cryptocurrencies, you are buying tokens of a particular currency, either to hold them in hopes that they gain value over time, or to use them for payments. Unlike stocks that trade in traditional stock exchanges, cryptocurrencies are bought from a crypto exchange and kept in a digital wallet.

Risks vs Gains

Of all traditional investment vehicles, stocks are considered one of the riskiest. The issuing company may face challenges that affect the stock price and its ability to pay dividends. The stock might even drop below your purchase price. However, not all stocks carry the same level of risk. Riskier stocks don’t always fall suddenly. Often, if you stay alert, you have time to exit and cut your losses. Blue chip stocks or indexed equity funds are generally less volatile.

Cryptocurrency is different. The digital currency market is even more volatile than the stock market. There is great potential for gains with the crypto spiking significantly. An example is Ethereum. In 2015, an Ethereum coin was only worth 67 cents. By early May 2021, it hit a high of almost $4,200 before dropping back down to $2,600 levels in that same month. Still, it did much better than the S&P 500 which increased by only around 42% from the year before.

Before you sink your savings into cryptocurrency and stock investment, make sure you also understand that cryptocurrencies can lose significant value very quickly. While you can make a lot of money, you can also lose a great deal if you aren’t careful.

What Should I Choose?

Your choice of investment will ultimately depend on your appetite for risk. Investing in cryptocurrencies requires a high tolerance for risk. You also need the stomach to handle sharp ups and downs. Stocks can be risky too. But if you research the companies first, you’re more likely to find good opportunities. If you choose to go with crypto, selecting great cryptocurrency stocks may give you some protection from losing your entire investment.

You can invest in both stocks and cryptocurrency. Just be careful when deciding how much to put in each. Follow expert advice: know your risk tolerance, diversify your investments, and only risk what you can afford to lose.