Traditional investors believe that the unregulated cryptocurrency system and its many naked scams make it too risky to maintain a sustainable financial structure. Potential investors must understand the context of cryptocurrency and its differences from traditional stocks in order to effectively plan and launch new portfolios. The following is a beginner's guide to cryptocurrencies and the stock market.

Understand the market

A market is a place where individuals can exchange one asset for another. Each asset has its own supply and demand. Generally, we believe that the price is expressed in the unit of account (legal currency), but each commodity can also be considered to have a price related to other commodities. We use fiat money as a medium of exchange, but in this market, people can exchange a gallon of milk for two dozen eggs in a fair trade.

In cryptocurrency, milk and eggs can replace two types of cryptocurrency assets (i.e. Bitcoin and Ethereum). In the market, each cryptocurrency asset can be traded with another cryptocurrency asset or any other asset. These transactions take place on the Cryptocurrency Exchange.

Owning stocks and cryptocurrencies

When someone buys cryptocurrency or stocks, they are buying assets, just as they are buying a car or a gallon of milk. The value of an asset will change over time, depending on the market's evaluation of the asset.

When someone buys Bitcoin, they are buying a certain share of all Bitcoin that exists. When the market pays more attention to Bitcoin, that part of the value increases, and when people pay less attention to it, that part of the value decreases. It's much like the way stocks work. When investors buy the shares of a listed company, they buy a part of the company split into shares. The value of each share is directly related to the market valuation of the company.

Evaluate stock and cryptocurrency

Valuating stocks and cryptocurrencies is very difficult. Anyone who can do this will become extraordinarily rich. The value of an asset is always closely related to its market valuation, but generally speaking, its value is supported by some fundamentals.

For cryptocurrencies, the fundamentals may be related to usage, network size, utility and popularity. Some even have minimum values at any point determined by fundamentals. This includes Thorchain (RUNE), a decentralized liquidity network or one-stop shop that enables users to exchange assets. Its symbolic value is at least three times the total value of the ecosystem under optimal conditions. Knowing the minimum value of tokens does not mean that the actual price can be predicted, but it provides a bottom line.

Stock prices are also related to fundamentals. These fundamentals are usually indicators such as revenue, growth rate and profit. Generally, stocks are discussed as having multiple underlying fundamentals (i.e., income multiplier and earnings per share). Because cryptocurrencies are far less mature than traditional stocks, their fundamentals are more difficult to predict, so they can be said to be more difficult to value.

The price is determined by the relationship between supply and demand. If a buyer buys shares or cryptocurrencies from another investor, they must "bid" the maximum amount they are willing to pay. The bid is usually lower than the seller's asking price. The difference between their bid and the seller's asking price is called bid ask spread. When both parties reach an agreement on the price, the transaction takes place.

summary

To put it simply, cryptocurrency is a digital asset whose core is self preservation, anti censorship, borderless and completely transparent. It provides a substitute for traditional currency, which is called "legal currency". Cryptocurrency is decentralized, which means that third-party institutions cannot control it. Shares, also known as equity or shares, represent part of the ownership of a company. The Company issues shares to raise funds for operation and expansion. After the initial public offering (IPO) of the Company, public shares become available. Investors buy stocks in order to obtain the opportunity of return on investment.