Stocks vs crypto: only a few short years ago this wouldn’t have even been a topic of discussion. But the meteoric (and controversial) rise of cryptocurrencies has made them hard to ignore. Not only in our day-to-day lives, but from an investment perspective, too.
After all, a single Bitcoin cost about US10c in 2009. Just over a decade later, in November 2021, it was worth over US$68,000. So any punters who put US$100 on it – and timed the market perfectly – could have walked away with a cool US$68 million.
Of course, very few investors will have had quite that level of success. And then there are the countless others who have lost substantial amounts, whether to scams and hacks or just poor investment choices.
But if you’re looking to invest, is cryptocurrency worth your time? Could you see the same eyewatering returns that have spawned crypto millionaires across the globe? Or should you look to stick to legacy markets, and invest in stocks instead?
Canstar takes a look at stocks vs crypto.
What are stocks?
Stocks are a security that indicate ownership in a particular corporation. If a company is publicly listed, ownership is divided into shares, allowing part-ownership by investors. For example, if a company has 1000 stocks, and you own 30, you have a 3% stake in that company. Although, in reality, large listed companies have millions of stocks.
Stocks can be bought and sold on a share market, such as the NZX.
What are cryptocurrencies?
Cryptocurrencies are digital coins that can be purchased on an exchange. The coins are decentralised, meaning no central authority controls them, and a public ledger, called a blockchain, is used to record their ownership.
Bitcoin was the original cryptocurrency, and it has inspired thousands more digital currencies. Our article, A Beginner’s Guide to Bitcoin, is a great place to start if you’re in the dark about cryptocurrencies and how they work.
Cryptocurrencies, such as Bitcoin, were originally intended to be used as regular money, to buy and sell goods and services.
Other coins, such as Ether (ETH) on the Ethereum platform, were designed to fuel and fund specific blockchain networks. For example, ETH can be used to engage with multiple apps that have been built upon the Ethereum network.
However, most cryptocurrencies are traded purely as speculative investments.
Investing in stocks: the pros
Stocks aren’t based on an ideology or dream, and they aren’t attached to nothing more than a line of code. They represent real ownership in real companies and have been traded for centuries. We know the stock market well, and we know what we are buying into.
Stocks benefit from being a highly regulated market. Companies must follow strict regulations and legal requirements to be listed on a stock exchange. That provides an added layer of security.
If a company is listed on a stock market, you can be confident you’re not investing into some sort of scam.
Many stocks pay out dividends. In simple terms, dividends are when a company’s profits are given back to its shareholders. For example, if a company makes a $10 million annual profit, it can either use those profits for reinvestment and expansion, or it can share the profits among its shareholders in the form of dividends.
The stock market may go through dips, and certain companies may falter, but the long-term trend is clear: the stock market goes up. Over time, the stock market has consistently outperformed other assets, such as gold and bonds.
The stock market contains stocks from nearly every sector imaginable. You can buy into tech companies, banks, car manufacturers, oil and mining companies, cereal manufacturers, beauty companies and more. If there’s an industry, there’s likely stocks to buy in it.
You even have the options of ETFs and managed funds, where you can invest in a pre-packaged bundle of different stocks, making diversification even easier. For example, a tech ETF may invest in multiple tech companies, or an NZX50 ETF may invest in the 50 largest companies on the NZX, without you needing to personally invest in each company individually.
ETFs and managed funds can also be used to track securities. For example, a gold ETF may hold large quantities of physical gold. By investing in the ETF, your investment tracks the price of gold without the need to buy physical stores of it.
Stocks can be volatile. But because they are tied to real-world companies, have a proven history and are strictly regulated, they’re less likely to suffer from drastic shocks. For example, Coca-Cola, Microsoft, and Disney can have good years and bad years, their stocks can go up and down, but it’s unlikely one will suddenly collapse and have its stock price obliterated overnight, as has happened with certain crypto investments.
Of course, the lack of volatility can work against investing in shares, too. As profits tend to require long-term investment commitments.
It’s easy to do
The modern wave of online share trading platforms means that investing in stocks is easier than ever. With apps such as Hatch, you can sign up in minutes, and buy stocks right from your phone!
Investing in crypto: the pros
Potential for huge gains
There have been plenty of big winners in the stock market. But you won’t find any 68 million per cent increases in value, as Bitcoin witnessed for while, although that figure is now lower, thanks to the current crypto crash. Cryptocurrency is in its infancy and is subject to massive hype and the potential for unprecedented bullish runs.
If you make the right moves, you could see hundreds of dollars turn into millions.
Supporting its philosophy
This might not be seen as a positive for everyone, but for those who believe in a decentralised financial future, investing in crypto supports this future. The more people invest, and the more widely adopted the crypto market becomes, the more our legacy financial system has to sit up and pay attention.
This doesn’t apply to all cryptocurrencies but, increasingly, crypto is moving from the digital gold model to one in which your investment has real-world utility. This could be as simple as spending it as a form of currency (more and more businesses are accepting crypto as payment) or it could be through using it to play games, buy digital art, or even to execute decentralised financial services.
Shares in a company can earn you a profit, and they may even give you a say in future business decisions (although unless you hold a significant amount of stock, your input will be minuscule) but they don’t have any significant real-world use.
It’s quick and easy to cash in crypto investments, not only to fiat currencies but to other cryptocurrencies, too. That means you can quickly cash in on Bitcoin, and move it into XRP, ADA, ETH or anything else you fancy.
Where to buy Bitcoin in NZ
The display order does not reflect any ranking or rating by Canstar. The table does not include all providers in the market.
|Provider||Fiat Currencies||Bitcoin||Other Currencies||Est.|
|Easy Crypto||NZD, AUD||Yes||100+||2018|
|Independent Reserve||NZD, AUD, USA||Yes||24||2013|
This information is not an endorsement by Canstar of cryptocurrency or any specific provider. Canstar is providing factual information supplied by providers. Cryptocurrencies are speculative, complex and involve significant risks. Canstar is not providing a recommendation for your individual circumstances or in relation to any particular product or provider.
Investing in stocks: the cons
Potential for high fees
While online share trading apps have brought lower fees, if you go through a traditional broker you can face much larger fees. Furthermore, if you invest in managed funds, you will likely face management fees, too.
Less potential for extreme gains
Stocks can perform well and see excellent returns, but it’s usually over the long term. For example, stocks such as Apple have seen massive returns, but over a 20+ year time period.
Crypto, on the other hand, can see extreme gains in just a few short years. Or, in some cases, even a matter of weeks or months.
Investing in crypto: the cons
Crypto is quite possibly the most volatile asset on the planet. A crypto asset can go on a bullish run one week, only to half in value by the end of the next one. For example, in the past five years alone, Bitcoin has been priced at both around US$3,000 and $US68,000 and everywhere between.
After Bitcoin hit US$68,000 in November 2021, it dropped to around half that just a couple of months later. And, more recently, it fell to below US$20,000.
What’s more, the crypto market is near impossible to predict, and often a coin’s performance is not tied to any real-world event. Something as simple as a meme (or an Elon Musk tweet) can be enough to send a coin’s value soaring or plummeting.
Or, a cartoon monkey can be cool one week and worth millions for no apparent reason, only for the hype to die and move on to something new.
→Related article: What is an NFT: the New Trend in Crypto?
A lack of regulation
One of the biggest problems facing cryptocurrencies is their current lack of coherent regulation. Governments are already making the first steps towards regulating cryptocurrencies. For example China banned Bitcoin mining back in 2021. And the rules and regulations are only set to increase.
Exactly what this means for the future of crypto is unknown. But certain coins could suddenly find that they are killed off by future regulations.
A lack of regulation also means that crypto has attracted scams and hacks in unprecedented numbers. Countless investors have had their investments stolen, while others invested in scams.
A lack of regulation has led to a Wild West approach from certain people and projects. Irresponsible and criminal practices have led to high-profile collapses and people losing all their investments.
Again, partly due to a lack of regulation, tax rules around cryptocurrencies can be complicated and confusing.
In New Zealand, if you buy and sell crypto with the purpose of making a profit, any money you make is subject to tax. Additionally, interest earned through practices such as staking are also subject to tax. However, any losses you make can be liable for use as a tax deduction.
When you fill out your income tax return, you need to declare any profits made from crypto assets in NZD, regardless of whether you’ve cashed out your crypto into a fiat currency. These will be added to your income and taxed at the appropriate rate.
If you’re in doubt about your cryptocurrency tax obligations, it’s prudent to seek the advice of a tax expert in the field.
Most experts will agree that diversification is key to any investment portfolio. And crypto could become a part of your wider investment portfolio. One that includes stocks, bonds, ETFs and more. By diversifying your portfolio, you give yourself more opportunities to find high-growth stocks (eg. discover the next Apple or Bitcoin), while protecting yourself from the impact of a single asset’s performance.
If you are considering adding crypto to your investment portfolio, make sure you do your research and understand the risks. Don’t just buy in for the hype.
And, of course, never invest more than you can afford to lose, and consult a financial expert
About the author of this page
This report was written by Canstar Content Producer, Andrew Broadley. Andrew is an experienced writer with a wide range of industry experience. Starting out, he cut his teeth working as a writer for print and online magazines, and he has worked in both journalism and editorial roles. His content has covered lifestyle and culture, marketing and, more recently, finance for Canstar.