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Investing is not a proposition of acquiring stocks or cryptocurrencies. It is best to have diverse investments that balance safer bets with investments that carry a higher probability of loss.
A solid investment portfolio should contain a diverse mix of assets. Putting money into different types of investments, such as stocks, bonds, real estate and commodities, spreads risk.
Prior to the cryptocurrency boom, acquiring shares in Internet-linked companies also boomed.
In order to assimilate the benefits and risks between stocks and cryptocurrencies, it is necessary to be clear about the difference between them.
Cryptocurrency
It is considered a medium of exchange that has gained popularity in the last decade.
However, its unregulated nature makes cryptocurrency too risky to support a complete financial system, as it lacks government backing and its value is determined by the market.
In addition, cryptocurrencies are held in decentralized networks of computers spread around the world and can only be accessed through a password of at least 16 characters that only those who acquire them have access to, as their security is based on strong cryptography.
Another point to consider for investors is that volatility has been a hallmark of cryptocurrencies, with abrupt changes in value in short periods of time, the best example is that last year Bitcoin exceeded $65,000 in value and until a few days ago it did not even reach $38,000 per unit.
Now, the cryptocurrency achieved some legitimacy as an investment vehicle, when the Securities and Exchange Commission (SEC) authorized the trading of an exchange-traded fund (ETF) related to Bitcoin, in 2021.
Shares
When considering cryptocurrencies versus stocks, remember that stocks convey ownership of a portion of a company.
Investors benefit when the value of the stock increases, which can be due to the company's performance. The more sales and profits a company makes, the more its shares should rise.
Cryptocurrencies and stocks are valid investment options, but they serve different purposes in a portfolio.
It is worth noting that, in order to buy and hold shares, the buyer usually has to open an account at a brokerage and disclose personal information, such as his or her Social Security number and address.
In contrast, one of the perceived benefits of cryptocurrencies is their anonymity. No one needs to know who the crypto buyer is. The owner of a cryptocurrency holds his or her assets in a virtual wallet or on a storage device, such as a USB drive.
So, while stocks provide stability; cryptocurrencies are riskier investments that while they offer the potential for great rewards, they also represent greater risk.