Compared to previous periods, 2019 was a relatively subdued year in terms of volatility for the crypto markets. However, reports state that the rate of crypto ownership doubled in the US alone during this time.
Over the last couple of years, crypto trading has transitioned from a pump and dump arena of speculation into a fully-fledged market. It is now attracting investment from both institutional grade and casual investors.
In short, crypto trading is officially no longer just for professionals. What’s more, with Decentralized-Exchanges (DEXs) and smart contracts like Uniswap, crypto trading is now safer than ever.
With the influx of mainstream interest into crypto trading, many people are asking themselves how it compares to trading legacy assets such as gold, silver, or stocks.
To avoid some of the common risks and pitfalls around crypto trading, it’s important that you know how this asset class compares to traditional trading.
Ready to get clear on the similarities and differences between crypto and stocks, gold, and silver? If yes, keep reading as we give you the lowdown on crypto trading vs. stocks and precious metals.
Similarities of Crypto Trading to Legacy Assets
Crypto trading is typically thought of as an alternative trading and investment type. However, it shares many similarities with traditional trading.
First and foremost, cryptocurrencies have a couple of similar properties to both stocks and precious metals. What’s more, the tax implications and technical analysis techniques are the same as with regular trading.
Finally, like in any area where profits are to be made, there is the possibility of scams and losses. Let’s take a look at these areas in more detail.
Cryptocurrencies Have Direct Similarities to Stocks and Precious Metals
Have you heard that Bitcoin is the new gold? Researchers have argued that Bitcoin is not the new gold, thanks to the ways its price behaves in response to the broader markets.
However, there is one area where almost all cryptocurrencies have a distinct similarity to precious metals.
Because most cryptocurrencies are mined, this gives them an inherent base cost, similar to gold and silver. Besides this, most cryptocurrencies also have a finite supply. The finite supply of mined cryptocurrencies and precious metals protects both these asset types from inflation.
Some cryptocurrencies are not mined, such as Ripple. However, most of these coins and tokens have an inbuilt system to counteract possible inflation.
Technical Analysis Is the Same in Crypto Trading
One of the aspects of crypto trading that is the same as in regular trading is technical analysis. Technical analysis can be applied to any market, whether it be stocks, gold, silver, or a cryptocurrency.
Are there are special technical analysis techniques for trading crypto? Not really. There may be some hyper-specific techniques that are common in the crypto space.
However, most technical analysis knowledge can be seamlessly transferred.
In other words, you won’t need drastically different charting skills to analyze the crypto markets.
You Still Need to Report Your Profits
initially, many crypto traders assumed that because their profits were in crypto, they didn’t have to report or pay taxes on them. However, we all know nothing is certain except death and taxes.
True to this adage, the IRS started cracking down on crypto trading gains several years ago.
Fast forward to 2020, and the IRS is continuing its efforts to ensure all traders report their earnings.
Keeping book of your cryptocurrency profits can be an involved process if you don’t plan for it. Each time you sell crypto, you will need to work out the profit or loss associated with the sale.
You will also need to keep track of every crypto buy you make. By recording the purchase value, you can later work out the base cost of future sells.
It’s a lot easier keeping record of your crypto gains and losses as you go than doing it in hindsight during tax season. Therefore, if you are trading crypto, you’ll need to establish a system for this before you start making your initial buys.
Scams Exist in Almost All Asset Classes
Another similarity that cryptocurrencies and traditional trading have is scams.
Thanks to the presence of little regulation, the crypto space became notorious for scams and tales of lost money. This notoriety kept many a cautious investor from testing the crypto trading waters.
However, the crypto scene is not the only place scams where scams happen. There have been numerous stock scams, with penny stocks being one of the worst offenders.
Precious metals are also no stranger to scams. As the price of gold rose during economic uncertainty over the pandemic, so did the number of gold scams.
In short, no matter the asset, it’s always important to trade wisely and choose secure platforms. Besides this, if you are entering the crypto game, you should also do some reading up on how to spot crypto scams.
Differences Between Crypto Trading and Legacy Asset Trading
Although crypto trading and traditional asset trading are similar in many ways—there are some differences you should be aware of. Read on to learn what they are.
Crypto Trading Is Generally More Volatile
One of the most noteworthy differences between crypto and traditional trading is volatility. As the cryptocurrency space is still relatively new, there is a lot more volatility in the market.
Of course, the stock market is not without its sharp ups and downs. This year saw some of the most volatile stock prices in recent history
Overall, however, cryptocurrency trading is likely to expose an investor to more volatility which can be both a pro and a con. With increased volatility comes the opportunity for increased profits. At the same time, high volatility levels can also trigger larger losses.
Crypto Trading Offers a Decentralized Alternative
Another major differentiating factor around cryptocurrencies is their decentralized nature. Most cryptos are decentralized tokens of exchange. This means their mining and distribution is not controlled by a central body.
Besides this, cryptocurrencies can also be traded without relying on Centralized-Exchanges (CEX). Although there are numerous CEXs —such as Binance and Coinbase—crypto traders can now choose to trade independently of these centralized platforms.
Instead, they can opt to utilize a DEX. DEXs operate via smart contracts which allows them to interact directly with the blockchain and between wallet addresses.
What are the advantages of using a DEX? Highly secure trading, with the convenience of a trading platform.
The reason why a DEX is more secure than a CEX is because it cannot hold your assets. In contrast, when you utilize a CEX, you have to entrust your capital to it. If the exchange is hacked, you run the risk of losing your funds.
Because a DEX cannot hold your funds, they are much more resistant to hackers. To access your funds, attackers would have to either hack the smart contract or the blockchain itself—something that is near impossible.
Thanks to the convenience, security, and popularity of DEXs, they have greatly assisted the Decentralized Finance (De-Fi) movement.
De-Fi offers several advantages over traditional finance. If you don’t like the idea of a controlling body having the power to freeze your accounts or seize your assets—then crypto trading might be right down your alley.
Fundamental Analysis Can Be More Complex
As mentioned earlier, you don’t have to be a pro to trade cryptocurrencies. However, are you planning on trading crypto pairs using fundamental analysis? If so, be aware that this can be complex at first.
When it comes to cryptocurrencies, fundamental analysis can often include looking at the potential value of individual projects. This could mean finding out what developers are on board and taking a look under the hood at the basics of their cryptographic protocols.
Besides this, crypto fundamentals can also include factoring in events such as Bitcoin halvings, mining difficulty, etc.
If you are completely unfamiliar with blockchain terminology, all of this can feel a little daunting at first. Fortunately, once you get your foot in the door, it’s by no means impossible to apply fundamental analysis on crypto pairs, even without any kind of formal training.
Secure Storage of Crypto Assets Comes With a Learning Curve
Finally, cryptocurrencies also differ from many traditional assets in terms of method of storage.
Unlike most mainstream traded assets, the storage of your cryptocurrencies is up to you. You are responsible for your wallet security, as well as what exchanges you trust with the tokens you want to actively trade.
Previously, traders were forced to risk a certain portion of their holdings on exchanges if they wanted to trade them. Any crypto assets not actively traded were best kept in online wallets or cold storage. As mentioned above, DEXs have eradicated the need for this risk.
By using a trusted DEX, you can trade cryptocurrencies directly from your wallet – without having to risk storing any of your funds on a third-party platform.
Start Crypto Trading Today With Swapfolio & Uniswap
Cryptocurrencies are an asset type unlike anything seen before. However, they share some inherent similarities to traditional assets. At the same time, there are also some differences that you should be aware of before you start placing those trades.
Now that you know how crypto trading compares to traditional assets—the next step is to find a reputable decentralized platform to start trading. Fortunately, you don’t have to look too hard.
If you are an Ethereum or Uniswap user, you have come to the right place. Our portfolio app can help you trade numerous pairs with ultimate ease and security.
Ready to leverage the safety of DeFi for your trades?
Simply launch the Swapfolio app, log in using your MetaMask account, and start trading today.