Everyone has their holy grail of investments whether it’s stocks or cryptocurrency or another type of investment such as gold. Good investors analyze objectively, without bias, and without feelings, as in reality these investments, whichever one you pick, do not care what we think or feel. They are driven purely by supply and demand, and that is a fundamental truth.
As you may already know, purchasing a stock allows you to own the equity of a company. The advantage of owning shares is that if the value of the company rises the value of shares increase, hence you receive capital appreciation if you sell your shares during a bull market. On the other hand, if the value of the company decreases you will lose money on your capital if you sell your shares during a downturn. The other advantage of stocks is that there’s a large selection that will provide you with dividends though with less growth. You could also weather the storm of a bear market although some stocks never truly recover. One example of no recovery from a stock is Blackberry (TSE: BB). Stocks from blue-chip companies are almost a guaranteed reliable investment. These stocks are for example Microsoft (NASDAQ: MSFT) and Google (NASDAQ: GOOGL). It’s not to say that will never fail but it’s not easy to take down tech giants.
The advantage with cryptocurrency is that for one it’s open every day of the week and you’ll be able to trade to your heart’s content. It is less regulated especially compared to Forex. Conventional currencies experience inflation fluctuations because of the ongoing movement of global economies which shifts prices continuously. In response to this, countries print more money, therefore, increasing the inflation in fiat currency. Cryptocurrency doesn’t experience this problem.
Cryptocurrency has a short history of data that you can use to evaluate its overall performance while stocks have backlogs of historical data. Due to it being relatively new compared to stocks for investors, cryptocurrency is highly unpredictable as people invest, short-term trade, or quickly pump and dump. It’s not to say that people don’t do this in stocks as well but the rate and frequency are higher, hence the extreme volatility. People are generally more afraid of losing their money when it comes to something newer and that they understand but not thoroughly enough. That creates doubt. They will exit from their positions prematurely. Once people start withdrawing from their positions prematurely it becomes a snowball effect and lots of people panic sell. Everyone starts withdrawing till it hits the resistance line of long-term holders.
Bitcoin graph. June 11, 2021.
In general, there are people who make bank from cryptocurrency but there are just as many or more people who lose money. If you’re not focusing on details and thinking ahead you can even lose your password like Stefan Thomas, a programmer in San Francisco. He owns 7,002 Bitcoin that he cannot retrieve because he lost the password to his digital wallet. It would be a fair point to say it could happen in stocks as well but so far we’ve been seeing it happen on the news and Reddit for crypto. The other problem with cryptocurrency is fraud and theft by hackers although diligently taking the right preventive measures tends to negate this downside.
After what we reviewed, is cryptocurrency worth it? Yes, cryptocurrency is worth it, even very worth it, if you can catch a ride during the very early stages of its release and development. However, if you’re buying something such as Bitcoin in this era, especially during a bull market, you’re paying a premium on each Bitcoin compared to the now Bitcoin millionaires. If you’re buying in volume your risk is higher than them and profit margins may be lower if it is reaching a price pinnacle. If you are investing in a different coin that’s a different matter, depending on the coin potentially better I should mention. Note that you can even receive dividends on crypto by staking. This is similar to GIC (Guaranteed Investment Certificates) where you lock up your currency asset and receive the dividend payout after a fixed amount of time.
Coming back to crypto itself the real question though is will the new altcoins become the next Bitcoin? No one knows, not even the experts. And if someone is pressuring you to bet on a certain cryptocurrency, pause for a moment and think about this: regulations can drastically change for the better or worse. Secondly, people may shift to an even newer coin release that’s more sophisticated. What we can learn from business failures and success is that society always favors innovation. Technology shifts into new gears after a cycle of about five to ten years. However, we don’t even know if that will happen with currency as we’ve never had sophisticated currency like Ethereum and Solana before. Maybe there will only just be Ethereum updates like Microsoft software updates or maybe it'll one day become replaced by another coin. The bottom line is that there’s a lot of uncertainty.
To answer the question of which is better stocks or cryptocurrency. The answer is it really depends on what stock or what cryptocurrency but more importantly when you buy which determines your position in pulling out gains. It’s worth watching documentaries about Warren Buffet and Charlie Munger to see the full impact on this point. The suggestion would be to, before taking any action, objectively ask yourself what potential does this investment have years from now, why does it have potential? Did you objectively research it? At what price point are you buying it? And finally what is your plan if the investment goes bust. Answering these questions will give you a clearer vision of where you’re headed with your investments. When my portfolio took a deep plunge in 2020 I held my entire portfolio without selling anything. I was very comfortable just holding because I did my research beforehand and I knew my portfolio would recover because I was well diversified in the backbone of the Canadian economy. That’s what I mean when I tell people, research and objective thoughts are crucial to success. During the crash, I was also buying more Exchange-Traded Funds. Needless to say, the entire portfolio is now well in the green.