According to new IMF research, the correlation of crypto assets with traditional holdings like stocks has increased significantly, which limits their perceived risk diversification benefits and raises the risk of contagion across financial markets, however, the possibility of cryptocurrency as a potential competitor to the stock market cannot be denied.
Cryptocurrency: Potential Competitor to Stock Market
Stock markets are seen as a source for potential investment that can either make you a millionaire or just destroy you within it. However, it is trending among many of the present generation and youth as a way to enrich their current income. Stock markets are filled with benefits for those who have an in-depth knowledge of it. In today’s generation however, the cryptocurrency market is not in the mainstream media and is portrayed in a negative light to whole extent, as it seems to be a potential competitor or can even outperform the current stock market.
The world ‘crypto’ seems to be very new to the upcoming mainstream generations and to the people in present. Crypto as a ‘means of currency’ means the science of hiding information of the transactions and events that occur between two parties and no particular legal third party (consider bank, government) has any way to gain access to the information. The basis that I am comparing cryptocurrency to stock market is because the functioning of both are almost similar, like, the investors can invest in a particular stock and buy its shares. Similarly, in crypto you may buy a part, the whole or even more of it. For cryptocurrency it is possible to buy a part and not whole of the currency, which is helpful for very small investors but to which the stock market lacks on it, as in this market, a person is the owner of a share after the mentioned amount is paid against it. But it is not just the whole benefit as our article is just a part of the talk. We, however, all know that the stock market is all about the stocks for shares issued by a specific company and the people subscribe to it and hold it on a long-term basis in expectation of huge profits. This is a very common and logical idea for every investment. But it twists on the point when the cryptocurrency market comes into opposition. It also does the same thing as the stock market but returns expected from crypto are way higher than what you earn from the capital market. Crypto has marked its name in the field of giving a very handsome amount of return. So, if you are considering that this percentage of return is just negligibly high then you are to know that a database on every search found that “fixed deposit gave a return of only 20% after is maturity while stock market gave a boom of above 50% return but, above all these, crypto market return touch 200%, just more than double of the initial investment” considering 10 years on the observation. So, these figures are enough to let you know the potential of crypto. The early adopters of these currently, are living a lavish life without any tension about their future and some of them are working as miners for some crypto-coin companies. It also might be in the minds of many that if it is so profitable, then why not it is highly popularized by the media and government, as they do it for the stock market, mutual funds?
Cryptocurrency is almost similar in investment like the stock market, as said earlier, but its working and control are the difference between the sky and the earth. Stock market is known by a slight proportion of the population but is practically executed with investments made by just 4% of the whole. So as seen, if the growth of the stock market is just controlled and known by just this proportion of people even after the awareness and campaign run for it by the government for the stock market, it is obvious that knowledge of the crypto market within this 4% would again tremendously reduce. The stock market is assessed, scrutinized and controlled by the government, therefore the government has every single bit of information on what people are buying, holding, selling as to their preference, which means the government can do anything as per their choice as it acts as a third party between purchases and companies in the stock market. However in the crypto market, there are no other third parties involved between the buyer and the sellers which makes it a secure mode of payment which is a great advantage. But since stocks are controlled, it is an easy way for hackers to rob the information & personal details without being known.
The working of crypto is different, as it is a decentralized form of exchange and uses block-chain technology to prevent unwanted outsiders from getting involved. Block-chain technology changes the current transaction into a block and spreads across many computers which then manage and record transactions. In today’s known crypto market, the most well-known of all is Bitcoin, the king of crypto and the first in its field. Bitcoin is a purely digital eye and it is also the most successful of hundreds of attempts to create virtual money through the use of cryptography, a science of making and breaking codes. In the year 2000, the price of one single Bitcoin was just ₹20 and presently the holders of Bitcoin are now considered millionaires because the price of one single BTC around this time was at a peak of ₹55 lakh and has been forecast to increase more and cross the cap price of ₹1 crore. But Bitcoin isn’t the only one, it is followed by many alternative coins or altcoins. Some altcoins that outperformed are Ethereum, Matic, Cardano, Ripple and so on and are increasing and investment in some of these ranges from ₹5 Lac. to just as low as ₹1. I am sure that stock market returns are pretty attractive but crypto has already outperformed stocks in terms of growth and return. But crypto is not recognised by the government so it doesn’t have the capability to be exchanged and transferred but stocks are exempted from this limitation. Though crypto provides a very high rate of return, it also involves a very high risk, as it is very volatile, as the graph of crypto suddenly might reach the peak and within no time fall to a very low extreme.
The government hasn’t regulated any laws and regulations on control of crypto, since crypto is a decentralized exchange which means no government, even hackers, cannot interfere in the working of crypto. Because of this, the crypto market is legal but unregulated, making it a secure platform for new and potential investors to invest.
A few months back, some banks petitioned a court that people are leaning more towards crypto to invest and that money is moving out of the country to which it demanded the court to permanently ban crypto. However, the government rejected the case saying that it depends upon the citizen as per their choice to invest anywhere as per his/her right. But, as said earlier, crypto can be controlled, so a ban on it is totally out of the book.
Though most Indians aren’t aware much about crypto, India stands as the largest holder of cryptocurrency in the world, holding the first rank. Sounds impossible but true. Though crypto is not a legal tender, the day is not too far when it will be accepted as a common medium of exchange as it secures a promising future due to its application and working which are highly impressive and secure.
Degree of Thought is a weekly community column initiated by Tetso College in partnership with The Morung Express. Degree of Thought will delve into the social, cultural, political and educational issues around us. The views expressed here do not reflect the opinion of the institution. Tetso College is a NAAC Accredited UGC recognised Commerce and Arts College. The editors are Dr Hewasa Lorin, Dr. Aniruddha Babar, Aienla A, Rinsit B Sareo, Meren Lemtur and Kvulo Lorin.
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