In recent years, Bitcoin has developed into a significant investing tool. During the final bull market in 2021, Bitcoin, which had previously been regarded as a niche asset for millennials, became a well-liked investment for big institutions. But for experienced investors, stocks are still frequently their preferred asset type. But with Bitcoin or stocks, how are investors surviving the crisis? In this article, we examine the benefits and drawbacks of Bitcoin and stocks, as well as the types of investors that should put money into each asset class.
Difference between Bitcoin and Stocks
The earliest and most significant cryptocurrency is Bitcoin. It uses blockchain technology and is decentralized. Bitcoin stands out due to its decentralization, which makes it independent of governments or banks. It is not under any jurisdiction of a centralized financial institution.
In its early years, Bitcoin was primarily an alternative currency that was more of a niche. Over time, the value of bitcoin increased massively, so more and more small investors invested in bitcoin. In recent years, Bitcoin has increasingly become an investment object in which large institutions such as companies or banks also invest.
Stocks are shares in companies that investors can buy. By purchasing shares, investors can participate in the growth of the company and receive dividends when the company’s shares increase. Stocks are classic financial products that have been traded for generations.
Is Bitcoin outperforming Stocks?
In recent years, the price of Bitcoin has significantly increased. Additionally, Bitcoin was able to increase when stocks saw little to no growth. It is in the essence of bitcoin to be strong when standard financial assets like stocks are down.
Since cryptocurrencies like Bitcoin and others are unregulated, their prices have increased dramatically in recent years. But because of this, we also observe dramatic price variations over very short periods of time. With cryptocurrencies, investors run the risk of losing a lot of money quickly.
In the last 1-2 years we saw a development in which Bitcoin was very much based on the development of classic financial products. Above all, the tech stocks on the American NASDAQ increasingly determined the direction of Bitcoin. This was due to the fact that more and more institutions were investing in Bitcoin and that Bitcoin ETFs and other financial products were becoming increasingly intertwined with the classic markets. However, this development could be reversed again in the future.
Who Should Buy Bitcoin and who Buys stocks?
The major distinction between the two asset classes in recent years has been the various buyer demographics. Many young investors and IT enthusiasts purchase Bitcoin and other cryptocurrencies as investments. Initially a specialized currency, Bitcoin has grown in popularity, especially after the bull market of 2017. Particularly novice investors began purchasing Bitcoin and other coins.
Stocks, as opposed to Bitcoin, are investments made by more experienced investors. These are typically middle-aged individuals who have been investing their money for many years. Due to their established histories, large institutions are also more likely to participate in the shares.
Is a recession coming?
In recent months it has become increasingly clear that the global economy could plunge into recession. We saw a sharp rise in inflation rates and commodity costs, particularly in the US and Europe. The high inflation meant that the central banks in the USA and Europe had to end their low interest rate policy and raise the key interest rate several times.
The new higher interest rates could now promote a recession, especially in western countries. In Germany, there is already a threat of negative economic growth in the coming months. Furthermore, we have already seen heavy losses on the stock markets in recent weeks. A recession appears to be imminent and some experts are already seeing the economy in one.
How do you invest in a recession?
In a recession, it is very difficult for investors to turn a profit. However, this also offers long-term opportunities, since financial products could be purchased at low prices. But are stocks or bitcoin a sensible investment in the recession?
Why are Stocks good?
Equities have proved their worth time and time again over the past few decades. Despite recurring severe recessions, investing in the stock market can provide investors with solid annual returns over the years and decades. Because in the long term, the stock indices rise continuously and a broad portfolio can promise relatively safe returns.
Advantages of stocks:
- established asset class
- relatively secure long-term returns
- appreciation over time
- Possibility of diversification
Why is Bitcoin Good?
Bitcoin (or other cryptocurrencies) is a modern alternative in investing. Bitcoin was originally intended to function as a purely decentralized means of payment. But with the extreme increase in value in recent years, it has become an exciting investment property. Unlike stocks, bitcoin is still very young. Furthermore, the price fluctuations are extremely high. Finally, there is the question of whether Bitcoin can thrive again if other asset classes fail to make gains.
Advantages of Bitcoin:
- future technology
- possible higher returns
- deflationary structure due to bitcoin halving
- Possibility of diversification (altcoins)
Should you invest in Bitcoin or Stocks?
Should we see a real recession in the next few months, you should make wise decisions to protect and possibly even grow your money. In the stock market, you might have a chance to buy stocks cheaply. You need to find a good entry point here though. Furthermore, stocks are more established and you can be a little “sure” that you will achieve long-term returns with stocks.
Bitcoin is an asset that is associated with more risk. You should know about the technology behind Bitcoin and follow the relatively young market regularly. The crypto market offers investors more risk, but also significantly higher chances of massive profits within a short time . You can lose a lot of money, but with the right knowledge and patience you can also win a lot of money.
So it depends on your financial goals and personal taste in what you want to invest in over the next few months. Leaving the money in the bank account is probably not a good choice, as shown in recent years with low interest rates and now high inflation.
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