The global interest in cryptocurrencies, the whooping profits, and the expected rewarding future have made crypto a trending topic everywhere. Today, investors are investing millions of dollars into the crypto market and the investment scale is just getting bigger and bigger.
However, there are investors too that are concerned with the future of crypto considering the China crackdown, unpredictable prices, regulations, and similar other factors. As a new investor, if you are confused about whether to invest in the crypto market or penny stocks, then follow up this blog to have a detailed comparison of both. The comparison will try to assess which asset class can provide a better return on investment, keeping in mind the risk-to-reward ratio involved in both.
Investing in the crypto market comes with its fair share of technicalities that must be understood before an investment can be made. Often while researching any cryptocurrency, the fundamentals that you will be looking at won’t probably be easily comprehensible at the start. Words like “second-layer solution”, “side-chain”, “Proof-of-stake”, and similar others will be the selling point for most coins, confusing the average retail investor.
However, it is important to develop a solid understanding of the underlying technology, as it is easy to lose money on a cryptocurrency that might have a good marketing team that promotes how they will “revolutionize finance”, but the underlying fundamentals are weak.
For a new retail investor coming into the cryptocurrency market, it is also important to stay in projects that have a relatively high market cap. This is because while a newcomer might gain a high reward by investing in a low market cap coin at the start, he/she can also lose all of the principal investment on a low market cap project.
This is why it’s better to earn a decent amount of profit on your principal investment on a high market-cap cryptocurrency and then use those profits to diversify into low cap coins. This approach might take some time to reward you, but it is also a safer way to make money in the cryptocurrency market. Some examples of high market cap cryptocurrencies are listed in the below figure:
Below, we have listed the pros and cons of the cryptocurrency market and how your investment can be affected positively and negatively as a result.
Commonly in the larger stock market, any stock that has a price less than $1 is typically referred to as a “penny stock”. While some even consider $3 or $4 stocks to be penny stocks. A good way to categorize any share as a penny stock is by classifying any company with a market cap of less than $250 million.
For a new investor looking towards penny stocks, it is important to know that this is a market of its own where investors with a very specific mindset come to trade. The market is typically known to be volatile, as many companies fail that are listed in the “pink sheets”. This is why any investor looking to invest here needs to perform thorough due diligence into the company’s financials.
More can be understood by considering the pros and cons attached to penny stocks as listed below.
Both the crypto market and penny stocks promise a common outcome: high rewards for the right investments. However, both come with their own forms of risks/worst-case scenarios. According to our opinion, cryptos hold a fundamental advantage over penny stocks, i.e., cryptocurrencies are still building towards a final product that has not been widely adopted. In comparison, most businesses that are penny stocks are unlikely to rate highly in the value-creation department.
Investors who invest in the crypto market have a higher likelihood of getting high rewards if the project adds major value to the world. This is why large institutions are more likely to invest in cryptocurrencies in the future than penny stocks. Thus, given the risk profile for both options, the crypto market holds a more promising long-term future for investors, despite the volatile price action.
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