The stock market and the cryptocurrency market operate according to the same laws, but they have many differences. You should take these peculiarities into account when choosing a place to make money and a strategy. Due to the differences between the stock and cryptocurrency markets, traders’ analytics change, and different methods and principles of risk management are used. That is why it is important to understand the differences between the markets.
Cryptocurrency market: what is it, what are its features
The cryptocurrency market is the youngest financial market in existence. It appeared a little over a decade ago and is still developing. Despite the high liquidity of crypto, the market is unstable, so a beginner needs to be extremely careful and cautious.
In simple terms, the cryptocurrency market is an online space where cryptocurrencies are bought and sold. It is decentralized, not controlled or supported by the government or other central authorities. The market operates through a large computer network, and users can buy and sell cryptocurrency on exchanges, P2P platforms, online exchanges, and other platforms.
The biggest difference between crypto and stocks is the formation of value. Stocks are backed by real-life companies that produce any product and make a profit from its sale. Cryptocurrencies are usually not backed by assets. Its price is formed on the basis of the hype around the coin, and some cryptocurrencies are also valued depending on the functionality.
High crypto volatility
The volatility of the cryptocurrency market is one of the highest today. Often, the price of a coin can change significantly in either direction within a single day. In the stock market, this is also possible, but only in relation to the shares of companies with low capitalization.
Volatility is a high risk because a trader’s capital can be halved in a day or even a few hours. However, this feature is one of the advantages of crypto: by following the principles of risk management, traders can make quick money.
Cryptocurrency decentralization
Profits made in the stock market or cryptocurrency market are taxed. However, decentralization makes cryptocurrencies more accessible to a simple beginner. The stock market is closely linked to specific exchanges that affect the liquidity of assets. The rules of access to stock markets are controlled by related financial institutions and are usually open to qualified investors. The cryptocurrency market does not have such strict rules now, it is open to a wide range of people, and anyone can enter it with a small start-up capital if they wish.
What factors control profits in the stock and cryptocurrency markets?
The principle of supply and demand works in both markets. But there are key factors that influence supply and demand. For example, in the stock market, these are changes in the political course, news about companies that own shares, and various natural disasters.
The cryptocurrency market works differently; prices here depend on the hype that is created. The reasons for changes in crypto prices sometimes seem absurd. For example, in 2021, Elon Musk posted a tweet consisting of the word Bitcoin and a broken heart emoji. As a result, the value of the coin dropped by 5.5% overnight.
The value of crypto is also influenced by the interest of users in a particular coin, the emergence of new startups related to blockchain technology, increased interest in the coin from large companies, serious technical failures in the work of popular exchanges, and changes in the regulation of the turnover of cryptocurrency assets by government agencies.
For beginners, the cryptocurrency market means a lot of unclear terms and the risk of losing initial capital if you choose the wrong strategy. How to become more confident and stay in the know? Gain knowledge, communicate with experienced traders, share insights with like-minded people! A good solution for a beginner is to join a crypto community. In our Crypto Crew community, you will receive structured information, advice from professional traders, and real-world experience.