COMPARATIVE STUDY ON

CRYPTOCURRENCY & STOCK MARKET

- Allan Jacob George
- Rishav Narzary
- Jacob George

Abstract
This study explores the association and the differentiation between investments in
cryptocurrencies and the stock markets. Using Surveys distributed to different individuals
belonging to different age groups and different fields of work, we collected data and analyzed
them to obtain answers relating to the relevance of price, the strategies used for investment and
the reasons for investment in stocks and cryptocurrencies. The findings have a few
implications for the present state of the literature on cryptocurrency and the stock market,
including study gaps and potential future research initiatives. Overall, our findings explore
potential avenues for diversification for investors across cryptocurrencies and major stock
market

1. INTRODUCTION

Return and volatility transmission as a measure of inter-market connection provides new insights
into global finance and has substantial consequences for portfolio and hedging decisions.
Academics and practitioners have given the dynamic links between stock prices and
cryptocurrency movements a significant amount of attention. This issue has become more critical
with the occurrence of increased market integration between traditional financial assets and
cryptocurrencies (Bouri et al., 2018). Cryptocurrencies have become a worldwide phenomenon
constantly discussed in the media, venture capitalists, banking, stock market, political
organizations, etc (Glaser et al., 2014). Cryptocurrencies have recently arisen new financial asset
class, and this provides a chance to research uncovered features of cryptocurrencies. With just 14
million Bitcoins that can be in use, cryptocurrencies, and particularly Bitcoin, have gained
popularity recently. Investors speculating on the potential of this new technology have propelled
the majority of the market capitalization at this time. This is anticipated to go on until there is a
certain degree of pricing stability and market acceptability. Investors in bitcoin appear to be
relying on the cryptocurrency's alleged "inherent value" in addition to its listed price. This
addresses the decentralized network, technology and infrastructure, and the stability of the
cryptographic code. One of the main reasons cryptocurrencies arose naturally is due to the non-
existence of a regulatory authority, such as Central Banks (or other banks), due to which
transactions are not monitored nor is there a need for it to be authorized. Such virtual currencies
serve as a great alternative to the monetary system due to their decentralized network structure,
which uses a peer-to-peer payment network based on blockchain technology. However, the two
types of exchanges differ in a number of ways, including the manner in which assets are traded
and the market's volatility.
2. REVIEW OF LITERATURE

The purpose of this paper is to present relevant theories and literature for this study. In order to
understand the association of Cryptocurrency and stock markets, one must first understand the
basics of Cryptocurrencies and stocks and the factors influencing their pricing and the reasons
relating to the volatility of the markets.

2.1 Awareness of investments

Despite being quite volatile, cryptocurrencies are growing in popularity on the global
financial markets (Kim et al., 2021).
According to Katsiampa (2017), the large returns of cryptocurrencies cause a lot of
volatility in their price movements. According to Dyhrberg (2016), Bitcoin can be used to
hedge against a range of risks, including those related to the stock market, foreign exchange,
and commodities. The stock market might be significantly impacted by cryptocurrency as well
(see Vardar and Aydogan, 2019; Salisu et al., 2019). Before cryptocurrencies can even be
regarded as secure, their operation depends on the different stock market, time horizons, and
investment viewpoints. (Bouri et al., 2017; Shahzad et al., 2020). According to Gil-Alana et
al. (2020), investors should diversify their portfolios by investing in Cryptocurrency. In the
current scenario digital currencies or crypto currencies constitutes a very small part of the
people’s investment portfolios. Serious investors who are ready to invest a huge sum of money
into these markets are very limited as people invest into crypto-currency markets just for
sampling and trial. People tend to not invest money that they cannot afford to lose and are only
ready to invest in assets that have proven results over the years and has a legal foothold so that
the people can put their trust in those assets such as Shares, government bonds etc.
Even after all this there is a gradual increase in the number of crypto investors all over the
world and the market has been on the rise for the past few years and is speculated to continue its
growth in the coming years.
For more investors to enter the crypto market, proper education about crypto currencies
should be provided to the investors and proper awareness should be provided to avoid the
misconceptions and misinformation’s that are currently on the spread, by conducting awareness
classes, updated financial education through schools and colleges, newspaper and magazine
articles etc. and actually help the investors to bring out the true potential of this market. The
major reason for the lack of awareness among the public about the crypto market is lack of
proper education about the topic. The only source of information available to people are certain
social media influencers and since no information is made public through any reliable sources
and it is also a fact that schools and colleges and not even financial advisors and accountants
tend to prefer suggesting other forms of investment options and tend to avoid cryptocurrencies.
This lack of knowledge acts as a major barrier to entering crypto markets. Misinformation is yet
another major reason that keeps people away from the world of cryptocurrencies. In many cases
we can see how people has seen cryptocurrencies as illegal and doesn’t fully understand the
mechanics behind how it works and how it is traded. People tend to associate cryptocurrencies
to criminal activities based on news and information that they don’t understand properly. People
are seen to be afraid to enter crypto currency market despite hearing about its potential due to
this very reason. This can be seen especially among older investors who are more conventional
and wishes to stick to conventional methods. Furthermore, the advancements of technology
have not been even around the world, and it is uneven even within countries. We can see that
latest technological advancements aren’t adopted by everyone, and many are not ready to invest
in the latest technologies until they get proven results. Especially in the case of cryptocurrency
and its mining, the awareness about this newer technology remains low and, in many cases,
people are not properly educated about the same.

2.2 Benefits of Cryptocurrency

Cryptocurrency exchanges are a relatively new addition to the global market, designed to make
trading or the exchange of cryptocurrencies easier.
One thing stock exchanges and cryptocurrency exchanges have in common is that they make it
easier to trade. However, the two types of exchanges differ in several ways, including the
manner in which assets are traded and the market's volatility. Currently, Cryptocurrency is the
fastest way to move money or assets from one account to another. In the United States, most
transactions are settled within three to five days. Typically, a wire transfer takes at least 24
hours. Within three days, stock trades settle. However, the speed with which cryptocurrency
transactions can be completed in a matter of minutes is one advantage. Your transaction's block
is fully settled and the funds are available for use when the network confirms it. Furthermore,
Cryptocurrency transactions are relatively inexpensive in comparison to other financial services.
A domestic wire transfer, for instance, typically costs between $25 and $30.International money
transfer fees can be even higher. Typically, cryptocurrency transactions cost less. However, you
should keep in mind that transaction costs can rise as a result of blockchain demand. Even on
the most trafficked blockchains, the average transaction fees are still comparatively lower than
the wire transfer fees. Also, Cryptocurrency can be used by anyone. You only need a
smartphone or computer and access to the internet. When compared to opening an account at a
conventional financial institution, the process of setting up a cryptocurrency wallet takes a very
short amount of time. No ID verification is provided. There is no credit or background check.
The unbanked can now gain access to financial services without having to go through a
centralized authority thanks to cryptocurrency. People who don't use traditional banking
services may be able to easily send money to loved ones or conduct online transactions with
cryptocurrency. However, the most important fact is concerned with the privacy cryptocurrency
offers. As you don't have to sign up for an account at a bank to use cryptocurrency, you can
keep your identity private. Transactions are pseudonymous, which means that your wallet
address serves as an identifier on the blockchain but does not contain any specific information
about you. This level of privacy can be desirable in many situations, whether they are lawful or
not. Cryptocurrencies are also limited by a cap, thereby eliminating the possibility of inflation.
The cryptocurrency is prevented from potentially spiraling out of control by this built-in
regulation model. When investing in this digital market, investors find this to be reassuring.
Cryptocurrencies are limited by a cap, thereby eliminating the possibility of inflation. The
cryptocurrency is prevented from potentially spiraling out of control by this built-in regulation
model. When investing in this digital market, investors find this to be reassuring. But the main
reason why people choose to invest in cryptocurrency is because it has the potential to provide
investors with a means of diversification away from more conventional financial assets like
stocks and bonds. Although the cryptocurrency markets' price action in relation to stocks or
bonds has only a brief history, the prices appear to be uncorrelated with other markets at this
point, Because of this, they might be a good way to diversify a portfolio.

2.3 Detriments of Cryptocurrency

Stocks are long established avenue of investment widely used to gain both short term and long-
term profits whereas crypto currencies have come to the fore front very recently and are prone
to irregularity in price and risk. Cryptocurrency investments are highly volatile. The word
"volatility" causes some conservative investors to run in the opposite direction. This is a market
that is based on speculation and can experience extreme highs and lows. Investors should avoid
investing in cryptocurrencies in search of stability because the value of coins can fluctuate
rapidly. Some potential investors are reluctant to invest in cryptocurrency due to its extreme
volatility. As crypto is still in its infancy, we simply lack sufficient data to persuade some
individuals of its long-term promise. Others remain skeptical until we have more time and
experience to consider, but those with a "high-risk, high reward" mentality may not be afraid to
jump in.
When making predictions, stock market analysts have access to centuries' worth of data; With
regard to cryptocurrency, we only have a little more than a decade of history to consider, which
in the grand scheme of things probably feels like a nanosecond to prospective investors.
Furthermore, cryptocurrency is a complex concept, it involves extreme knowledge and use of
technologies, Common people may fail to understand its working and may choose not to invest
and since it has no backing like Currencies or isn’t regulated by an independent body like SEBI
(Securities Exchange Board of India). It can create a conception in people’s mind that it isn’t a
safe investment. But one must need to realize that it is due to this very factor, that there isn’t a
regulatory body or a middlemen in place for transactions, that the very concept of
cryptocurrency rose.

2.4 Investment Strategies for Stock Market

There are various strategies used by investors in stock market and each of them differs from
each other due to the risk factor associated with each strategy. Firstly, Buying and Holding is
one the most commonly used and constantly proven investment strategy in which a stock is
bought and held for long periods of time rather than to trade it sooner. This sort of investment
helps investors to avoid active trading and let the success depend on the performance of the
company over time and multiplies the original investment to a large amount. This strategy is
suitable if a person wants to avoid daily trading and helps to avoid constant payment of capital
gain taxes but a downfall is that the value of the investment may drop during the time period but
must endure the market and hold onto the asset. Moreover, Buying index funds is another
popular investment strategy in which index funds that mirror major stock indexes are purchased
as the sole investment. It is a form of passive investment and provides with a diversified
portfolio of investments. In this method the investor receives the average of returns from the
whole index but this can also be a drawback as the returns can be comparatively lesser than
profits gained from the daily trading of hot stocks. Additionally a mixed portfolio is preferred
for most investors, in this investment strategy the investor invests in an index fund and adds a
few other investments of his own choosing along with it. The main advantage of this strategy is
that it provides the safety of returns through index funds but also lets the investor to analyze and
invest in the market on his own without huge risk of loss if it doesn’t work out.
Besides one must also consider the Reinvestment/Income investment, in this strategy stocks that
provide a cash payout such as dividend stocks or bonds are bought and the income is reinvested
onto other stocks. Income investments tend to fluctuate lesser than the other forms of stocks and
is less prone to risk. The major disadvantage of this is that dividends of income stocks be
reduced or cut and there can be low payout on bonds this can lead to a reduction in purchasing
power. Lastly, the Dollar-cost averaging is a strategy that cannot be excluded from the other
strategies but it helps in executing whichever strategy that was adopted. It is a method of
making regular investments in regular intervals. It helps to attain discipline in investing and
helps avoid dumping a lot of money on various stocks. The disadvantage of this is that you
won’t be able to take full advantage of a profitable investment.

2.5 Investment Strategies for Cryptocurrency

There are various strategies used by investors for investing in cryptocurrency and each of them
differs from each other due to the risk factor associated with each strategy. Firstly, the Dollar-
cost averaging, It is one of the most popular crypto investment strategy in which a fixed amount
is used for purchase of currencies in regular intervals to avoid over investing. In this strategy
preferably a particular currency with long term prospects are selected and that particular asset is
bought regularly. Secondly, investors choose to have a Balanced portfolio, In this strategy the
investor allocates the money he plans to invest equally to various currencies. This is asyitable
strategy for beginners as it provides a diversified portfolio and exposure to well performing
currencies. But using this strategy it is less likely to attain higher returns from identifying high
return currencies. Thirdly, investors choose to forgo the balanced portfolio and turn to
unbalanced portfolio, in this portfolio you choose a portfolio of currencies and allocate your
investments more to the currency you think will perform better than the rest. Each subsequent
investment will be based on this percentage of distribution. This strategy is most suited if you
have properly analysed the currencies and knows which will perform well. Certainly a risk
factor is involved as your analysis can be wrong so only adopt this if you are sure of your
analysis. Lastly, Profit reinvesting is adopted once you have a fixed portfolio that earns profits.
After which one can find the newer currencies and prospects that exist in the market and use
your previous returns to earn more profits. This strategy is suited if you wish have only limited
investments in crypto currencies as you are not sure about the sustainability of the market and
invest into newer prospects only when you gain returns. A major disadvantage is that you miss
out on great investments as you have to wait for your current investment to show profit and are
also taking money away from currently owned currencies that are showing profit.
3. OBJECTIVES
 To cover the importance of investing in cryptocurrency and stock market.
 To know the pros and cons of investing in stock market over cryptocurrency.
 To determine the factors affecting the pricing of cryptocurrency and companies in stock
market.
 To compare the strategies used by people in investing.
 To determine how aware the people are about the rising crypto market.

4. RESEARCH METHODOLOGY
Method of Data Collection
This study is based on primary and secondary data. A questionnaire was prepared for the primary
data. Multiple choices were given below the questions that are framed relevant to the topic. A
sample size of 100 respondents has been used for this research. Data was analyzed by simple
mathematics called percentage. The responses of the respondents are given below through
graphical pie charts. Secondary data is taken through websites, journals, and magazines.

Analysis & Findings

Interpretation: For the survey, 61.1% of the respondents were between the age group 18-25,
27.8% of the respondents were above the age of 25 & 11.1% of the respondents were below the
age of 18.
Interpretation: For the survey, 66.7% of the respondents did know about cryptocurrencies and
their uses,24.4% of the respondents did know what’s a cryptocurrency but didn’t know how
they’re used & 8.9% of the respondents didn’t know anything about Cryptocurrency.

Interpretation: For the survey, 60% of the respondents were Male and the remaining 40% were
female.

Interpretation: For the survey, 62.5% of the respondents were students, 18.8% of the
respondents were Private Sector Employee and the remaining 18.8% had a business of their own.
Interpretation: For the survey, 64.4% of the respondents were hadn’t invested in the Stock
Market and only 35.6% of the respondents had invested in the Stock Market.

Interpretation: For the survey, 84.4% of the respondents hadn’t invested in Cryptocurrency and
only 15.6% of the respondents had invested in Cryptocurrency.

Interpretation: For the survey, 73.3%% of the respondents thought that its essential to invest in
the stock market or cryptocurrency, whereas only 15.6% & 11.1% thought its not essential and
its better to invest it in a savings account in a bank respectively.
Interpretation: Majority of the respondents believed that Stock Market is the better investment
because it is a much safer and a valued investment as compared to Cryptocurrency. They
reasoned that as cryptocurrencies are unregulated and are highly volatile and are still not fully
legal in many countries, it is not really a good investment. Whereas the value of stocks can be
somewhat predicted and investing in it helps in the growth of the economy due to which,
majority of the respondents considered stocks as a better investment.

Interpretation: For the survey, 75.6% of the respondents thought that Cryptocurrency is a
riskier investment, whereas only 24.4% thought the same about Stock market.

Interpretation: For the survey, 62.2% of the respondents knew how the shares of companies are
priced in the stock market, whereas 37.8% didn’t know about it.
Interpretation: From the survey, various strategies were used by the respondents for investing.
Some of them included Buy and hold, Buying index funds, Mixed portfolio,
Reinvestment/Income investment, Dollar-cost averaging, Balanced portfolio, Unbalanced
portfolio, Profit reinvesting etc. Some of them don’t use any strategies and just invest based on
news and trends.

Interpretation: From the survey, the respondents thought the main reasons for the fluctuations
in the prices of cryptocurrencies were dependent on the supply of Bitcoin and the market’s
demand for it, the cost of producing a bitcoin through the mining process, the number of
competing cryptocurrencies, Regulations governing its sale and use, the media and the news.

Interpretation: From the survey, the respondents thought the main reasons for the fluctuations
in the prices of shares were due to the supply and demand in the market, fundamental factors like
a company's earnings and profitability from producing and selling goods and services and
technical factors in the market pertaining to chart patterns, momentum, and behavioral factors of
traders and investors.

Interpretation: For the survey, 62.2% of the respondents thought that ‘Maybe’ India will accept
Cryptocurrency as a legal tender, whereas only 20% thought that it won’t be accepted a legal
tender in India. Furthermore, 17.8% thought that Cryptocurrency will be accepted as a legal
tender in India.
Interpretation: For the survey, 46.7% of the respondents felt that Cryptocurrency should be
regulated by an independent body. 31.1% of the respondents felt that maybe it should be
regulated, whereas only 22.2% felt that it shouldn’t be regulated.

Interpretation: For the survey, only 50% of the respondents knew the actual price of bitcoin
which was $20000 at that time.

Interpretation: Majority of the respondents knew other Cryptocurrencies other than Bitcoin,
they named few cryptocurrencies like Ethereum(ETH), Tether(USDT), XRP, LUNA, DogeCoin,
Cardano(ADA), Solana(SOL) etc.
Interpretation: For the survey, 52.3% of the respondents thought that Cryptocurrency wouldn’t
replace UPI in India, 27.3% thought it will replace UPI in India, whereas 20.5% weren’t sure
about it.

Interpretation: Majority of the respondents encouraged investing in Cryptocurrencies and Stock

markets, they believe that investing helps in outpacing inflation and helps to increase value of
wealth. They believed that through wise investments made regularly one can compound their
wealth. A few of them discouraged investing due to the high risks involved and recommended
depositing the amount in a bank to earn a fixed rate of interest.

5. CONCLUSIONS
By the end of the late 2000’s,the peer-to-peer payments systems rose, which started off with the
Bitcoin and went on to the creation of a huge payment service known collectively as
cryptocurrencies. Even though crypto currencies have been taking the headlines in various
occasions what we realize is that the awareness about this rising market among the people still
remain low as only the younger and tech savvy investors know and understand enough about this
rising market in order to take advantage over it. The study has found that cryptocurrencies have a
high return and volatility rate compared to stock markets. However, there is more
unpredictability in the crypto market as compared to NSE indices and crypto market is subject to
high volatility. Cryptocurrencies can be included in an investor’s portfolio, if the investor is
ready to take additional risks to attain a better return. Currently, around 70% of the respondents
thought its essential to invest rather than just save, they thought this was essential due to the
rising costs of living, higher value generation due to compounding and investing helps to the
development of the economy. Currently, even though the Crypto-market is rising and is offering
higher rate of return than the stock market, it is still lagging behind in popularity due to the fact
that Stock market have been there since so long and cryptocurrency is still a new concept.
Furthermore, the older generations are still a bit more cautious towards investment in
cryptocurrency due to their complex structure, lack of regulation and high volatility. But they fail
to realize that the very concept of cryptocurrency only exists due to the lack of regulation and
complex structure which makes it very hard to mine cryptocurrencies, thus increasing its value
and making it limited in demand. To add on, majority of the people feel that Cryptocurrency
wouldn’t be widely used in India especially for the peer-to-peer payment because of the
existence of UPI which is very convenient and most of it is absolutely free, therefore many feel
that the conveniency factor is already provided by UPI’s, but one must also consider ‘Privacy’,
which is not offered by UPI or any banks in India. As soon as banks come as a mediator between
payments, the privacy is long gone. Also, Cryptocurrency makes it easier and is useful for people
who have lack of legal documents as there is a large number of unbanked population in our
country, even UPI requires you to have your KYC completed with all your bank details and legal
documents. Furthermore, with the Tax that might be levied on the capital profits obtained in
trading Cryptocurrency in India, one must be wary of investing in Cryptocurrency. Knowing all
the risks associated with Investing in Cryptocurrency, people are still hopeful of it being
accepted as a legal tender in India soon and majority of the people encouraged recommending
investing as they believed that through wise investments made regularly one can compound your
wealth.

6. REFERENCES
 Volatility estimation for Bitcoin:– Paraskevi Katsiampa (2017)
 Bitcoin, gold and the dollar – Anne Haubo Dyhrberg (2016)
 Return and volatility spillovers between Bitcoin and other asset classes- Gulin Vardar
Berna Aydoğan (2019)
 Do Bitcoin and other cryptocurrencies jump together? - E. Bouri, D. Roubaud, S.J.H.
Shahzad (2020)
 Cryptocurrencies and stock market indices. Are they related? - Luis Gil-Alana
 Connectedness among major cryptocurrencies in standard times and during the
COVID-19 outbreak- A. Kumar, N. Iqbal
 Risk spillover between Bitcoin and financial markets- Y.-J. Zhang, E. Bouri, R. Gupta,
 https://www.bankrate.com/
 https://groww.in/
 https://www.investopedia.com/
 https://www.edelweiss.in/
 https://timesofindia.indiatimes.com/
 https://corporatefinanceinstitute.com/
 https://www.imf.org/
 https://www.cointree.com/