Many cryptocurrency investors have never learned about cryptocurrency, but most of them have a certain understanding of the stock market. In fact, stocks and cryptocurrencies are two different fields. It is not a good idea to learn from the experience of the stock market to participate in cryptocurrency market investments.
This article will explain the differences and similarities between stocks and cryptocurrencies.
Investment model for cryptocurrency not applicable:
1.P/E ratio
The price-to-Earning Ratio (P/E or PER) of a stock is the price per share divided by the earnings per share. For example, KFC stocks 100 yuan, a total of 20 stocks, then the total market value of KFC is 100 yuan * 20 = 2000 yuan. The company earned 200 yuan in 2018, and the profit per stock is 200 yuan / 20 = 10 yuan per share. The price-earnings ratio of this year is 100/10 = 10 times. In other words, the investor buys this stock for 100 yuan, and in theory, the principal of the original investment can be recovered in 10 years.
2.Net asset value per share
Net assets per share refers to the ratio of shareholders' equity to the total number of shares. The formula is: net assets per share = shareholders' equity / total number of shares. This indicator reflects the present value of the assets owned by each share. The higher the net asset value per share, the greater the value of the assets per share owned by shareholders; the less net assets per share, the less the value of assets per share owned by shareholders. Usually the higher the net asset per share, the better. When a company sells all its assets and pays off all its liabilities, the net worth is the amount that shareholders can get back.
3.Discounted cash flow
The cash flow discount model is referred to as the DCF model. The meaning of this model is: the current value of an investment or an enterprise, equal to the sum of the present value of the cash flows generated in the future. If the discounted value is lower than today's stock price, then the pricing of the stock is attractive.
None of the above evaluation models are applicable to cryptocurrencies. The reason is that all of the above valuation models are based on the company's financial statements and forecasts, and companies that issue cryptocurrencies do not need to publish any such statements or forecasts. Therefore, when investing in virtual currency, we have no corresponding data to conduct valuation. Even if we have such data, we will not be given any rights and assets.
Multiple comparisons of stocks and cryptocurrencies
Similarities:
The most similar thing between stocks and cryptocurrencies is that the value of both depends on the next buyer. If the price of the stock/cryptocurrency is $10, if the seller wants to sell it for $100, and if the buyer buys the stock/cryptocurrency, then its value becomes $100. So to some extent, the most important factor in the value of stocks/cryptocurrencies is that other buyers in the market are willing to buy/sell.
Differences:
1.Wnership and voting rights
The cryptocurrency does not give you ownership and voting rights. In the stock field, if you own 1% of the company's stock, it means that you have the right to vote at the company's general meeting. It also means that you have the right to get 1% of the company's remaining assets after the company goes bankrupt. (Note: Some DPOS projects also Have voting rights, but these are meaningless for cryptocurrency trading).
2.Dividend
Stocks can receive dividends. A good company distributes dividends to shareholders every year. The annual dividend is a few percentage points of the stock. In cryptocurrencies, dividend characteristics do not exist.
3.Secret deal
Stocks are strictly regulated by the government, and there are many regulations and laws for listed companies. For example, stocks prohibit market players from trading stocks based on insider information (affecting company stock price information). But such insider trading is very common in the cryptocurrency market.
For example, A works in a public company, and he happens to know that the company has developed a comprehensive market solution, which will be released next Monday. If A buys shares this week, he is likely to be sentenced for insider trading. But if A's company is a cryptocurrency company, he will not take any responsibility and can reap all the benefits of the new news release.
4.Financial Statements
The regulatory authorities require listed companies to publish quarterly and annual financial statements showing the development and future development of the company's business during this period. However, in the cryptocurrency trading market, the issuing token company is not obligated to publish any information about the company's financial statements.
Undoubtedly, when deciding which digital currency to invest in, the lack of financial statement information will make it difficult for investors to judge the potential risks of cryptocurrency.
5.Transaction hour
Stock market trading restrictions, most trading days on the working day, 17:00 closing, closed on weekends. If you buy a public company stock, you can sit comfortably on the sofa when the stock closes, without worrying about stock price fluctuations, but this is not possible in the cryptocurrency world. The cryptocurrency transaction is open 24/7, which means that there is no relaxation time for investing in cryptocurrency.
6.Transaction fee
The cryptocurrency field mainly has withdrawal fees and transaction fees. In the stock field, you need to cover stamp duty, commission, transfer fees, other fees, and so on.
In conclusion
Based on the above analysis, it is easy to conclude that cryptocurrency investments are much more risky than stock investments. Therefore, it is recommended that you need to know more about cryptocurrency before you start trading cryptocurrency investments, and don't use stock market knowledge in the cryptocurrency field.