The global stock market is finally starting to look up. With COVID-19 dominating every aspect of our lives in the past year, it has impacted the economy and businesses. But with businesses opening up and a brighter future this year, a lot of question on people’s mind is: Is it the right time to invest in stocks or are cryptocurrencies, like Bitcoin, better than stocks?
It’s understandable that with interest rates slashed and businesses clamping down on outbound money, stocks may still not be an attractive option. Capital gains, dividends and profitability is much lower and that means investors and people are looking for alternate investment options.
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Stocks and Bitcoin: The Difference
Stocks are Securities
They are essentially a share in the business. When you buy a stock, you practically own a part of the company. The value of the stock may be higher or lower than its real (face) value, depending on the performance and perception of the market. As the company performs better, the demand of its share will rise in the market and that’s where you get your capital gain from. If you buy, for example, 10 stocks of Facebook for $1,000 each and after a year, the stock is trading at $1,200, you could cash out and gain a $2,000.
The value of stocks, though important and a very crucial part of investments, is not the main advantage of it. With becoming a shareholder, you are also entitled to dividends. If the company makes profits, you make profits. So, overtime, investing in stocks gives you the dual advantage of a passive income and future prospects of wealth gains.
Bitcoin is a Digital Currency
Bitcoin is not a business, nor does it represent a share in one. It is simple coding, that is heavily protected from edits and programming corruption. Envisioned by the enigmatic and elusive Satoshi Nakamoto, Bitcoin was designed to be a means of value transfer, a.k.a. money.
Bitcoin isn’t operated or run by a single organization. In fact, there are thousands of people involved in running and maintaining the network. Secondly, the Bitcoin you hold doesn’t give you a dividend and like stock, its value rises and falls. So if you own Bitcoin, you will only generate profits if the value rises and you sell it. The biggest issue of all: since Bitcoin is not operated by a company, nor is it a share, people holding it are not covered by investment rights laws such as by SEC.
Bitcoin vs. Stocks
Any investment in stocks carries its own risks, and so do stocks. The market could crash, or grow immensely. Firms perform poorly, leading to dividend cuts. The company could even generate loss, meaning no profits at all and even declare bankruptcy. However, there are many technical indicators, tools and calculations that take in account the past performances of the stock market and the companies, which can help mitigate these risks.
Bitcoin carries its own risks too. The first thing to understand is that it is a speculative asset. It does not have any kind of backing, gold, cash or otherwise. The value is solely based on demand and supply. This makes it a highly volatile asset. Where value fluctuation of more than a few Dollars in stocks can have many people worried, Bitcoin sees hundreds of Dollars going up and down in a single day.
As an asset that is just a little more than a decade old, with unpredictability and no asset backing, there are no technical indicators that can define Bitcoin’s trend and future value (although many attempts are made successfully, but not enough to official recognize it). Market prediction is more of a fundamental indictor dependant, with speculations.
Should I Invest in Bitcoin or Stocks?
The short answer: Both!
As any investor will tell you, diversification is key to success. Many people will tell you otherwise, with some claiming Bitcoin is the future and how someone they know made millions of investing in a small portion of Bitcoin. While there will be always people who will say stocks are tried and tested and Bitcoin just a fad.
The truth is that stocks are real and so is Bitcoin. Short term investment in Bitcoin may not yield results, but the long term perspectives are good, as always. A few years ago, it less than $1,000 in value, this month it touched $41,000! The cryptocurrency has been the profitable asset in the last years, outperforming even gold. If you want to have a future without debt and want to retire in peace, Bitcoin investing is the way to go.
At the same time, stocks give a passive income that Bitcoin does not. The only issue here is that the value is not maintained throughout the year.
The best practice would be to diversify your investment. Keep stocks, enjoy the dividends and sell them if you think they are overpriced, but don’t forget to put a portion of your savings in Bitcoin. With limited supply and a rising demand, Bitcoin will definitely give results that will outpace any investment.