In recent years, Bitcoin has become an important investment tool. During the final bull market in 2021, Bitcoin, previously considered a niche asset for millennials, became a highly prized investment for large institutions. But for experienced investors, stocks are often still their preferred asset class. But with Bitcoin or stocks, how do investors survive the crisis? In this article, we examine the advantages and disadvantages of Bitcoin and stocks, as well as the types of investors who should invest money in each asset class.
Difference Between Bitcoin and Stocks
The oldest and most significant cryptocurrency is Bitcoin. It uses blockchain technology and is decentralized. Bitcoin stands out for 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 tremendously, 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 increased significantly. Additionally, Bitcoin was able to surge when stocks saw little to no growth. The essence of bitcoin is to be strong when standard financial assets like stocks go down.
Since cryptocurrencies like Bitcoin and others are not regulated, their prices have increased dramatically in recent years. But because of this, we also see dramatic price swings over very short periods of time. With cryptocurrencies, investors risk losing a lot of money quickly.
In the last 1-2 years we saw a development where Bitcoin was largely based on the development of classic financial products. Above all, technology stocks on the US NASDAQ increasingly determined the direction of Bitcoin. This was due to the fact that more and more institutions were investing in Bitcoin and Bitcoin ETFs and other financial products were becoming more and more intertwined with the classical markets. However, this development could be reversed again in the future.
Who should buy Bitcoin and who buys shares?
The main distinction between the two asset classes in recent years has been the demographics of the buyers. Many young investors and IT enthusiasts buy Bitcoin and other cryptocurrencies as investments. Initially a niche currency, Bitcoin has grown in popularity, especially after the 2017 bull market. Novice investors in particular started buying Bitcoin and other coins.
Stocks, unlike Bitcoin, are investments made by more experienced investors. These are usually middle-aged people who have been investing their money for many years. Due to their established histories, large institutions are also more likely to participate in the stocks.
Is a recession coming?
In recent months it has become increasingly clear that the world economy could slip into recession. We saw a sharp rise in inflation rates and raw material costs, particularly in the US and Europe. High inflation meant that central banks in the US and Europe had to end their low interest rate policy and raise the benchmark interest rate several times.
The new higher interest rates now could 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 in the equity 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 make a profit. However, this also offers long-term opportunities, as financial products can be purchased at low prices. But are stocks or bitcoin a sensible investment in the recession?
Why are actions good?
Stocks have proven their value time and time again over the past few decades. Despite recurring severe downturns, investing in the stock market can provide investors with solid annual returns over years and decades. Because over the long term, stock indices are continually rising, and a broad portfolio can promise relatively safe returns.
Advantages of actions:
- established asset class
- relatively safe long-term returns
- recognition over time
- Possibility of diversification
Why is Bitcoin good?
Bitcoin (or other cryptocurrencies) is a modern alternative to invest. 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 interesting investment property. Unlike stocks, bitcoin is still very young. Also, price fluctuations are extremely high. Finally, there is the question of whether Bitcoin can thrive again if other asset classes fail to turn a profit.
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?
If we see a real recession in the coming months, you need to make wise decisions to protect and possibly even grow your money. In the stock market, you may have the opportunity to buy shares cheaply. However, you should find a good entry point here. Plus, stocks are more established and you can be a little “sure” that you’ll get long-term returns from stocks.
Bitcoin is an asset that is associated with more risk. You must know the technology behind Bitcoin and follow the relatively young market regularly. The crypto market offers investors more risk, but also significantly higher chances of making massive profits in 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.
Therefore, it depends on your financial goals and personal taste in what you want to invest in the coming months. Leaving the money in the bank account is probably not a good option, as recent years with low interest rates and now high inflation have shown.
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