MoneyLife

Bitcoin vs Stocks: Which Investment Is Right For You?

By Lindsey Ryan

Bitcoin and the stock market both had tremendous success in 2020. The Standard & Poor’s (S&P) 500 returned 18% to shareholders, and some stocks produced life-changing returns in a matter of months. The 2020 Bitcoin investment return was jaw-dropping to the tune of a 288% ROI. These incredible gains have heated up some Bitcoin vs stocks conversations as the two asset classes continue their strong rallies into 2021. 

Should you invest in Bitcoin vs stocks or both?

As excitement draws around Bitcoin vs stocks, now is the right time to take a closer look at these assets to determine which one makes the most sense for your portfolio. It’s important to know if you should load up on both individual stocks and Bitcoin.

What is Bitcoin?

Depending on who you ask, Bitcoin is either the future of society or a speculative investment. Since Bitcoin is a relatively new way to invest relative to stocks and bonds, not everyone understands the asset yet. The key to understanding Bitcoin is to first understand cryptocurrency

Cryptocurrency is decentralized, digital money that operates on blockchain technology. Transactions are confidential, and no singular authority has control or access to all of the data. Bitcoin is the most established cryptocurrency in the market, and with only 21 million coins in existence, Bitcoin’s limited supply heightens the demand and value of each coin. 

While only 21 million Bitcoins exist, over 129 billion Dogecoins exist, making Bitcoin the more valuable cryptocurrency. Not all cryptocurrencies have a cap, but with Bitcoin, there will never be more than 21 million Bitcoins in existence. Bitcoin is a novel investing opportunity with plenty to learn, starting with Bitcoin art.

What is a stock?

Stocks enable individuals to invest in various companies. Your investment grows if the company grows, meaning it will also decline if the company underperforms. You can invest in dividend stocks, penny stocks, and index funds to name a few choices. Some employers offer 401(k) plans that come with tax benefits and other perks to help you invest your way to retirement.

However, markets are not always efficient. The lack of efficiency results in overvalued and undervalued stocks. This creates buying and selling opportunities in the stock market.

What’s the difference between Bitcoin vs stocks?

Now that we know a little more about both assets, let’s take a closer look at Bitcoins vs stocks.

Supply

While publicly traded companies can issue new shares, Bitcoin does not have that luxury. The creators of the cryptocurrency set a cap of 21 million coins. There is no way to increase this number. Issuing more shares would increase the supply of the shares, which would then create short-term declines in the stock price. Bitcoin holders don’t need to worry about dilution affecting the value of their coins. The limited supply of Bitcoin makes the asset far more valuable.

Transaction Fees

Transaction fees on stocks have been declining for years, with some trades being done at zero commissions. That means it doesn’t cost you any money to buy and sell your favorite stocks. However, the average Bitcoin transaction fee is $23. You can cut costs by purchasing fewer Bitcoins in your transaction. However, Bitcoin transaction fees are far more expensive than stock transaction fees. For example, to trade stock options, the commission fee is $0.65 per contract on Fidelity. However, buying and selling individual shares is free.

Affordability

A single Bitcoin costs tens of thousands of dollars. On the other hand, you can find great stocks for under $20. While you can buy fractional shares of your favorite stocks and do the same with Bitcoin, many investors prefer to have an entire share or an entire coin rather than a fractional share. 

If this is you, stocks make more sense in the Bitcoin vs stocks debate. If you don’t care about having fractional shares, then this is a non-factor. Furthermore, a low-priced asset doesn’t indicate a bargain. Some $5 stocks are incredibly overvalued, while certain $100 stocks are significantly undervalued.

Valuation

Stocks currently offer a more comprehensive range of valuation metrics than Bitcoin. To see the value of a stock, you can look at the stock’s price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio, and price-to-book (P/B) ratio. You can also look at a company’s performance over time to determine if the current value is justified.

We don’t have these types of metrics for Bitcoin. Market emotion fuels the intrinsic value of Bitcoin, and there is no quantifiable way to tell if the asset is overvalued or undervalued.

If you are saving up for retirement in your 20s, you have plenty of years ahead of you for growth narratives to play out. However, if you are planning to retire soon, valuations become a more decisive focus point as you have less time to recover before retirement if an asset plunges 50% in its price.

Storage

Storing your stocks is simple. Open an account with a broker and start buying stocks. The broker will handle the rest. Bitcoin storage is a little more complex than holding onto stocks. Personal digital wallets are where you can store Bitcoin and other cryptocurrencies. These digital wallets can either be hardware-based or web-based. 

The hardware-based digital wallet is the safest route as it’s not connected to the internet, but if you lose the hardware, you’ve lost all of your Bitcoins. A web-based digital wallet avoids those hassles, but hackers are notorious for stealing your hard-earned Bitcoins from wallets.

Every Bitcoin wallet contains a set of private keys in the form of a code. If you forget these codes, you can’t access your wallet. The decentralized currency avoids many problems of centralized currencies, but you are now fully responsible for your assets. If you don’t remember your private keys, you can’t get new ones. They’re not like passwords where you can reset them when you forgot them, and there’s no one to turn to for help accessing your account.

If you don’t want to handle the complexities of owning Bitcoin, you can opt for actively managed ETFs that invest in Bitcoin. That way, you don’t have to panic about remembering your private keys and keeping your digital wallet safe.

Have your stocks–and Bitcoin, too!

When it comes to Bitcoin vs stocks, why only have one when you can have both? We’re coming to the rescue with actively managed ETFs that give you Bitcoin, stocks, and bonds. Now you can effortlessly trade cryptos from your phone. You can even boost your crypto holdings through MoneyLion’s rewards program and their new Round Up feature. Reserve your spot for the MoneyLion Crypto Launch today.

The best time to invest is now

Whether investors pick Bitcoin or stocks, the most gains come from compounded growth. In the beginning, investing can feel challenging, but the more your portfolio grows, the more your money will work for you.MoneyLion is here to work for you on your path to wealth. Open a RoarMoneySM account to maximize your dollars and get a clear view of your money. RoarMoney provides rewards and special offers that can help you do more with your money. Get RoarMoney’s special perks for just $1 per month.

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Soon you’ll be able to effortlessly buy, sell, and earn cryptocurrencies, like Bitcoin and Ethereum, through the MoneyLion app.* Make sure you have a RoarMoney℠ account so you can participate.

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