Bitcoin vs Stocks: Where Should You Invest Your Money?Mark Hartley
At some point in each of our lives there comes a time when we consider how best to invest our savings. No matter how little money you have, it’s never too early—or too late—to start putting that money to work. Whether it’s a simple pension fund, an IRA, or a mixed bag of stocks and assets, your money will almost always provide better returns when invested.
However, investment opportunities change over time due to a multitude of factors including political, technological, and cultural trends. Savvy investors keep an eye on developing markets and continuously diversify their portfolios to accommodate the current climate. The most recent disruptor to hit the financial world in this way is Bitcoin, a new type of digital investment that is taking the world by storm.
Bitcoin is part of a new class of assets known as cryptocurrencies which store monetary value securely in a digital format. Even though these assets don’t have a physical form, they maintain value through advanced technology that ensures their scarcity and keeps them secure.
How Cryptocurrency Differs from Traditional Stocks
If you aren’t well versed in the technology and fundamentals of cryptocurrencies, it’s easy to think of them in the same way as other assets like stocks or bonds. However, behind the scenes, cryptocurrencies function in a vastly different way to stocks, especially Bitcoin. Despite being intended as digital money, Bitcoin has evolved to act more like digital gold than a currency. In this way, it acts differently to both stocks and foreign exchange.
Whereas a stock price is linked directly to the performance of the company, Bitcoin has no shareholders, no CEO, and is not linked to any country or government. This puts it in a league of its own—an entirely unique method of safely storing and transferring value with no need for a broker, bank, or third-party intermediary.
Traditional investors may find this lack of intermediation unsettling but it has many advantages. Like gold, Bitcoin is immune to inflationary practices that damage fiat currency or insider trading that can damage the value of a company. Bitcoin offers all the same ‘hard money‘ benefits of gold but in a more secure, easily transferable digital format.
Nowadays, you can buy cryptocurrency with a variety of methods: either directly from a seller, on an exchange, through an investment fund, or as part of a product like an IRA. Thousands of financial institutions are beginning to offer cryptocurrency investments to their customers so they can benefit from this burgeoning new asset class.
Key Differences Between Stocks and Crypto
- Hours: Cryptocurrency trades 24/7, 365 days a year, unlike stock markets which keep office hours.
- Regulation: Stocks are regulated by government agencies, cryptocurrencies are secured by blockchain technology.
- Volatility: Cryptocurrencies are typically more volatile than most stocks.
- Ownership: Stocks remain tied to a company whereas with cryptocurrency you take full ownership and responsibility of the asset.
How Does Digital Currency Work?
Digital currencies like Bitcoin are recorded on a transparent and immutable ledger technology called a blockchain. In the same way that a bank keeps a record of your savings on its computers, Bitcoin keeps a record of your investment on the blockchain. However, unlike a bank that can run out of cash reserves, the exact amount of Bitcoin that you own is always available to you.
There is only 21 million Bitcoin available and it’s impossible to create more, so Bitcoin will never lose value due to inflation. Once all the Bitcoin available has been issued, its scarcity will ensure it continues to hold increasingly high value. Other cryptocurrencies use similar or equivalent methods of supply control to protect against rampant, uncontrolled printing that results in endless inflation.
Due to the large choice on offer, many people are unsure which crypto to buy. Generally, the best way to judge a reliable crypto asset is to see how long it has been running. Bitcoin, Ethereum, and Litecoin have all been around for many years, proving themselves as reliable investments. Unlike some new crypto coins that may die after one year, these coins show strong promise as a safe, long-term investment.
Key Bitcoin Statistics
- 11 years of secure operation
- Limited to 21 million coins
- US$1 trillion market valuation
- 408.8 percent mean annual return
Why Both Bitcoin and Stocks Make a Good Investment
As you can see, cryptocurrency and traditional stocks offer very different investment opportunities. There are advantages and disadvantages to both asset classes, which is why it’s always best to diversify your portfolio in a balanced way. Investing a percentage of your money into Bitcoin and stocks will ensure you don’t miss out on the great returns of cryptocurrency while maintaining a secure long-term stock position.
Statistically, Bitcoin offers the best returns of any asset over the past decade but the technology is still relatively new and lacks strong regulation. It may still take some time for governments to develop effective regulatory policies in the cryptocurrency sector, assuring traditional investors that cryptocurrency is safe.
Stocks, on the other hand, have a long history of profitable and safe investment opportunities. If you do your research, keep an eye on emerging trends, and pick good stocks, you can be assured a decent return on investment (ROI). Companies like Apple, Amazon, and Microsoft have proven excellent long-term investments, although for each one there was also a promising company that has failed.
Should You Buy Cryptocurrency? Diversification is Key
Whatever you choose to invest in, always remember that diversification is key to ensuring your portfolio always stays in profit. No single asset or asset class is immune to losses, so make sure you don’t put all your eggs in one basket. A good investment portfolio should include a well-balanced mix of stocks, precious metals, and cryptocurrencies.
For this reason, many people choose to invest in both stocks and a cryptocurrency product like an IRA, helping to protect against any single failure. Investing in a mix of cryptocurrencies and stocks can provide an extra level of protection, balancing out any losses against gains and providing a stable ROI.