What is Cryptocurrency stock?
Cryptocurrencies are encrypted currencies, which only exists in the cybeer world. It is not backed or issued by any central authorities, namely either the central bank or the government. Bitcoin, being the first crypto to become public in 2009, has inspired on the inventiong and evolution of the crypto world. For over a decade, investors are fascinated by the unlimited gains that investing in these coins that might bring them , that they often choose to neglect the risks that come with it.
Crypto investments can be made in different forms in the markets. It can be pure exchanging of coin itself, it can be in the form of futures, it might be in the form of ETF, but, cryptocurrencies are not actual commodities, so there is really nothing as “”. As an alternative, we can buy shares of public listed companies whom invest in or are related to these coins.
Some of the public companies that are related to crypto stocks are:
- NVIDIA and AMD: they are two semi-conductor companies which GPUs, software used for the creation of cryptocurrencies
- Salesforce.com: a CRM software company which can help in providing blockchain solutions
- Facebook: creator of Libra
- Shopify: allows payment transactions using cryptocurrencies
- CME Group: the first market for Bitcoin futures
Not one of the above companies are pure plays on cryptocurrency, but all of them, more or less are involved with it. Someday soon, when these cyber currencies become more of a mainstream, they would be the first to celebrate on the results.
So, can Crypto Currency be considered a Stock?
NO! As was mentioned in the previous paragraph, these cyber coins cannot be pure “coin stocks” as they have no “real” value to it, unlike other publicly listed companies. Cryptocurrencies do not offer their investors legal entitlements, and the legitimacy of these currencies has always been an issue in discussion for the mass majority of the society.
To make it plain and simple, below are the key differences that differanciate trading cryptocurrencies from trading stocks.
- Tangible ownership and possession of the coins
- Legal entitlements
- The Howey test and why a great deal of cryptocurrencies are unregulated
Cryptocurrencies or Stocks : The Ownership and Possession Concern
Among the many differences between traditional stock trading and crypto trading, the ownership issue has always be on the throne for debates. While buying shares from of a stock entitles you to a piece of the company which issues the invested stock, with cryptos, this is not the case, and that is what we refer to as the Ownership concern.
When you pay for something, it is natural for wanting to own or possess what you have paid for. With cryptocurrencies, this process is actually much easier and faster than stocks. When you purchase a coin, although it only exists in the virtual world, yet after the transaction is done, and by the way, to perform such a transaction only requires about 10 minutes, the coin will be deposited into your coin wallet. However, when you purchase a unit of shares, you do not get to actual keep the shares with you. In such case, to properly own a stock, instead of trading on an trading platform, you also have to get an actual paperwork to certify the owning of the stock.
As said, owning cryptocurrencies are much easier, and quicker. The transfer of these coins can be done between peers through many different channels. Trading platforms for such transactions to take place, decentralized or non-custodial exchanges are becoming more and more common by the day. In less than 10 minutes, the coins can be exchanged and safely deposited into your coin wallet.
Cryptocurrencies or Stocks : Legal Entitlements
The second key issued that is debatable when considering the differences between stocks and cryptocurrencies is its legal rights. Like said, with buying a unit of stocks, you are legally entitled to a piece of the company, a share to the profits of this company, and most often, this will be presented in the form of dividends. With cryptos, after gaining the ownership, you are still not entitled to any legal rights as they are hard to be enforce since these coins are shielded from government manuEven though people tried to get their funds back, the majority was lost. And there are much fewer legal recourses for cryptocurrency investors and traders.
The advantage is the insane amount of volatility in the cryptocurrency market, which helps traders get rich (or lose everything) much quicker.
Cryptocurrencies or Stocks: The Howey test
To sum this article up, let us explore the Howey test. Howey test is to determine whether an asset can be defined as a security by financial regulators or not. Although the result it produces cannot be guaranteed 100% applicable for cryptocurrencies, but this is the best there is now available.
Simply put, the Howey test questions whether the value of a transaction for one of the participating party is dependent upon the other’s work.
The Howey test determines whether a transaction represents an investment contract if “a person invests their money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party”.
For an asset, digital or not digital, to be labeled a security, it has to meet at least one of the following criterions.
- The investment is to be made thru investing in money-wise
- Profits are expectable while making the investment
- The invested money is to be invested in a common enterprise
- Profits, if any, has to be made thru the efforts of a promoter or a third party
With all evidents shown, it is presumably clear that there is no such thing as a crypto currency stock as yet. Once regulatory issues are resolved, once it becomes a mainstream, then there could be a big chance of it becoming visible to the mass investors as being issued a "stock" on its own. For now, we will just have to wait.