Cryptocurrency has often been compared to stocks, as both investment options are performed solely online and are now open to investors of all different backgrounds. But even though there is some truth in these statements, the crypto markets are slowly becoming the dominant investment choice, with transaction volumes increasing on a daily basis.
So what is it exactly that makes more people purchase bitcoins instead of Amazon or Tesla stocks? In this article we will explore why the growth of the crypto market has seen tremendous growth over the past few years, and why it “out-hypes” the popularity of stock trading.
Their target audience
- The stock market is mainly focused on older generations (baby boomers and Gen X). Even though banking apps like Revolut are currently making stock trading more accessible, the majority of people are still using brokerage services due to tech-illiteracy.
- The cryptocurrency market has more elements of gamification, making it more accessible to Gen Y, millennials, and even Gen Zs. The space is still less regulated than the stock market and the promise of riches and steady passive income (crypto staking) makes cryptocurrency the dominant investment choice.
Furthermore, popular cryptocurrency exchanges are regularly releasing financial products (futures trading, margin, leverage trading, etc.) that are already well known in popular investment markets, making cryptocurrency more interesting for older generations as well.
The focus on community building
The “fan base” of popular technology companies is limited to the interest of participants to perform in-depth research and ponder on the applications of the technology. Sure, Tesla is a popular company, but not everyone follows the company’s progress unless they have a Twitter account and scroll through Elon Musk’s profile on a regular basis.
Cryptocurrencies do this differently. Not only do they give lots of emphasis to community building, but they do so on many different channels. From Twitter and Telegram, to Discord and Facebook, coin creators make sure to maintain a high level of engagement with their audience.
And it is working!
Just look at the recent drama of SUSHI, a popular DeFi token. After its founder sold all of his tokens, the engagement levels increased to new highs, with most people claiming the project was a total scam. Shortly after, the founder returned all of his profits to the project, and the engagement was on fire once again - this time on a positive note. The result? More people know and talk about SUSHI, and there is more trust than ever with regards to the project’s success.
Another thing that needs to be added with regards to community building is the ability of network participants (coin holders) to participate in the project’s decision-making process. By using their coins as a voting mechanism, users are able to co-create the project’s future and consider themselves part of it. Here’s how this looked like for SUSHI.
Hype > Research & Fundamentals
One of the most important reasons for which cryptocurrency is becoming more popular than stocks is how the decision-making process of investors is affected by external factors.
- Stocks - When investing in the stock market, investors will need to research the technology, purpose, and fundamentals in depth before making a decision. And even if the correct decision is taken, the profits could take a long time to come.
- Cryptocurrency - Even though cryptocurrencies should also be researched in depth before an investment decision is made, their profit potential often depends on the hype of a particular coin-type or feature. We saw this in 2017 with privacy coins and we see it once again in 2020 with DeFi coins. The value of such cryptocurrencies (mostly) derives from the hype that a rather uneducated market creates for them. This creates large price spikes (or drops) in a matter of days or even hours.
Having said that, hype does have an effect on the stock markets as well. We can observe this when looking at the progress that companies like Tesla and NIO have made over the past few months, as new, futuristic technologies promise to improve our future.
Their profit potential
This is possibly the most important factor that makes cryptocurrency a more luring investment option. After Bitcoin experienced a price growth from mere cents to nearly $20k dollars, the market realized that the popular coin does not follow the direction of any other market. This gave hope to somewhat unrealistic scenarios, like million-dollar price scenarios and new coins that could replicate the success of BTC.
Long and behold this actually ends up being true, with Ethereum, Chainlink, and many other cryptocurrencies becoming extremely popular and rewarding compared to popular stock options.
As the market is preparing for a new bull market, this sentiment becomes even more evident. Popular investors, VCs, and institutions are betting big on Bitcoin and bet large portions of their holdings in its successful future.
On the contrary, stocks are less rewarding when observed in the long-term. The average return rates most often fall into the single-digit % return rates, and that includes fees that need to be paid to brokers. As such, it is easy to see how crypto is the dominant investment option.
Summarizing the key points
While crypto and stocks are two completely different investment options, they are both used for the exact same reason - the increase of wealth.
While the stock market has (for many years) been dominant but also very limited, the freedom and money-making potential of crypto seems to threaten it. And that, as we saw in this article, happens for several reasons:
- Cryptocurrencies are open to everyone, including younger generations. They are also a lot more luring towards young investors due to their gamification elements, asymmetric profit potential, and passive income opportunities.
- The stock market has traditionally been reserved for investors who perform in-depth research and follow the trends of the market. Cryptocurrencies adopt a different approach, by focusing on community building and making their audience as engaged as sports fans.
- Many of the profit-making opportunities in the crypto market are purely based on hype and are countless times more rewarding than the average returns of the stock market.
- Cryptocurrencies are more profitable and often so in the short term. One the contrary, stocks are seen as a safer investment option, where the returns are less rewarding but more certain.
