Investing in cryptocurrency trading is similar to buying stock on stock trading exchanges. The process appears to be almost the same. You buy the stock, and you hold on to it until it appreciates. They are both digital assets, so there is no physical stock just like there is no physical cryptocurrency. Despite these similarities, stocks are not the same as cryptocurrencies. This article will highlight key differences between stocks and cryptocurrencies.
What are the Differences Between Stock and Cryptocurrency?
1. Security Insurance
Stock traders in the United States are required by law to buy insurance for their stocks by the SIPC. The insurance covers you if your brokerage goes out of business. It can be up to $500,000. There is no such provision for cryptocurrency trading. Only exceptional exchanges like Coinbase and Gemini offer clients insurance on cash deposits.
2. Insider Vs. Outsider Trading
There is always an uneven flow of information between insiders and outsiders in digital asset trading. In stock trading, insiders are like mutual funds and executives that possess an unfair advantage over the outsiders. In cryptocurrency trading, the insiders are the token producers, large holders and mining pool members. In both stock and cryptocurrency trading, these insiders always have an unfair advantage over other traders. However, the stock market is heavily regulated with strict insider trading laws that also protect outsiders. No such regulations exist in the cryptocurrency industry.
3. Price Inconsistency
The SEC guarantees that the limit orders are not filled with the worst price compared to the best offers across all exchanges. In cryptocurrency trading, the best bid isn’t stable. It varies from exchange to exchange. This is why it is important that you pick one of the best cryptocurrency trading exchange when you want to trade.
These are the three major differences between the stock market and the cryptocurrency industry. There are other differences between both digital markets, but these are the most obvious ones.