Bitcoin and stocks are soaring in 2021 and many investors are wondering which asset class is the better investment: cryptocurrency or the stock market.
Bitcoin and stocks have different properties, risks, and rewards so it makes sense to educate yourself and study them closely before investing your hard earned money.
In this article, I’ll cover the basics about Bitcoin and stocks and give you some pros and cons on which to invest in.
It’s important to study, learn, and prepare yourself before you invest because Bitcoin and stocks are both volatile, risky asset classes.
If you don’t want risk then try safer investments like index funds, bonds, or CDs for your money.
What is Bitcoin?
Bitcoin is a decentralized cryptocurrency that trades on a public ledger called a blockchain.
There are only 18 million Bitcoins in circulation and you must buy/sell them using a digital exchange and store them in your digital wallet (either online or offline).
Bitcoin is scarce, cannot be printed by governments, and makes it very easy to transfer value across the globe within 30 minutes.
It’s much faster and efficient than bank transfers, thus giving Bitcoin a lot of praise as the future of our global economy.
What are stocks?
Stocks are partial ownership shares in a real life business that trades on a public stock exchange.
Companies issue public shares and trade on exchanges under ticker symbol during regular market hours.
Most publicly traded companies like on the NYSE or NASDAQ but other companies may trade on the OTC markets too.
Stocks give the shareholder a portion of company earnigns depending on how many shares you own.
Some of the richest men in the world like Jeff Bezos and Elon Musk became wealthy when their stock soared in value.
Which is Better: Bitcoin or Stocks?
Each store of value has different pros and cons so I’ll talk about them a bit more in-depth.
Bitcoin has returned around 200% annually over the last 10 years and has a good track record for investment returns.
However, Bitcoin doesn’t have to potential to increase 100% TO 500% in one day like many stocks do.
Some publicly traded stocks on the NASDAQ, NYSE, and OTC may double or triple in one trading session after a positive news or earnings catalyst.
Bitcoin doesn’t have earnings season or anything like that because there is no underlying company.
Many investors will find faster returns from investing in stocks over Bitcoin.
Liquidity means how easy is it to buy/sell a particular investment.
Bitcoin offers 24/7/365 liquidity because the cryptocurrency market never closes and is always open.
Stocks, on the other hand, trade during normal market hours while some brokers offer premarket and afterhours trading depending on their particular rules.
Cryptocurrency is far more liquid than stocks and can be sent or transferred around the world within minutes.
Stocks must be sold then it takes around 2 business days for your brokerage to settle the transaction. After the stock transaction has settled, you may withdraw your funds to a bank account, which could take another 2 to 3 business days,
Bitcoin is a much easier way to store your money for emergency access until you keep cash in your brokerage account and tie that cash to an ATM debit card.
Bitcoin is extremely scarce because there are only 18 million Bitcoins in circulation.
Stocks are measured in total supply by the shares outstanding and that number differs based on the underlying company.
For example, Apple has 17 billion shares outstanding while MicroStrategy has 9 million.
What makes Bitcoin more scarce is that the total max supply is 19 million.
However, a company can easily issue more shares using a stock offering to further dilute its public stock.
Bitcoin is more limited and rare when compared to stocks on average.
Bitcoin has intrinsic value because it’s rare, easy to transfer, and doesn’t rely on governments or banks to control the supply.
I can give someone a Bitcoin and they can hold it for a long time without the value diminishing over time.
That’s why many cryptotraders refer to Bitcoin as digital gold.
Stocks carry intrinsic value but that depends on the strength of the underlying company.
Many of the best companies 20 years ago are worth a lot less in 2021 so owning stocks is a risky investment.
Companies like Enron, JcPenney, and Sears were valuable but fell into bankruptcy after their competitors took over the market share.
The intrinsic value of a stock is tied closely to its underlying earnings but earnings may disappear if a business fails to delight its customers.
Bitcoin is a better long term store of wealth because it cannot be diluted or destroyed by bad management, weak sales, etc.
Even the greatest company can watch its stock price plummet if the market bets against the company.
While Bitcoin may decrease in price, it will always carry some value due to its scarce nature.
Bitcoin is much safer to pass down to your kids and grandkids than the next high flying stock.
In reality, many of the best stocks in 2021 won’t be worth as much in 10 year so it’s important to stay on top of your stocks if you want to keep your money growing.