Bitcoin vs Stock: What’s the Right Balance?

bitcoin vs stock and a woman holding two fake bitcoins

“Do I invest in Bitcoin?”
“What about stock? Is it too late to jump on the GameStop train?”

First of all, don’t outsource your thinking. Second, like any financial question ever, it depends on what your objectives are. But I’ll tell you my approach to both.

Quick Overview

Bitcoin is decentralized and traded across a series of exchanges. If you have Bitcoin in your own cold storage wallet, no one can take it away from you.

Stock is incredibly regulated (lol) and allegedly reflects the fundamentals of the companies which issued the shares to begin with. E.g. buying shares in Apple means you own a tiny percentage of the company. In reality, this doesn’t mean anything 99% of the time.

Both are bitcoin and stock are taxable, but only if you declare how much bitcoin you sold and took profit from (lol).

If your question is “cool, I don’t care, which one will give me tons of money?” then I would say don’t invest in either—go start your own business.

For passive investment, we can discuss BTC vs stock.

Quick Disclosure

I own some crypto, and I own some stock.

So obviously, I think both have their place.

The thing I try to own a minimum of is cash.

Stonks

Basics. Stock, equities, securities. These are rough synonyms (not legally though, so don’t quote me). Securities = tradable goods. Bonds are securities too. Equity is ownership in a company, most commonly stock. Stock is the issuance of those security. If a person owns 1000 shares of Apple, they have shares in one stock. If they own 10 shares of Apple, 10 of Tesla, and 10 of Google, they have shares in three stocks.

The stock market measured as a whole tends to rise over time, around ~8.5%. Whatever the whole market averages is called the benchmark. The benchmark is what most investors are trying to beat, because it means they are above average. Most fail.

Because most people are bad at being above average, they just try to be average. This is why low-cost index funds are such a big deal now. You’re buying the whole market, not any one company. You’re safe in the center of the herd. Or at least, when you get screwed, everyone else is just as screwed as you.

If you have no idea what you’re doing, and you’re trying to just save money over time for retirement, you’ll put it into a broad market-based index fund.

But that’s not what this blog is about.

If you’re trying to be aggressive, and you decide aggressive stock investing is how you’re going to get ahead, here’s your rough plan.

  1. Study a market niche that’s interesting to you (e.g. electric vehicles)
  2. Understand the state of the industry, the competitors, what the challenges are, and get an idea of potential upside for a business and how it would potentially reflect in share price
  3. Once you have a solid thesis, you test the thesis, and if it holds, invest heavily into your thesis
  4. Or just YOLO it all on a hunch like most day traders

This becomes a full-time job (or a full-time side job) unless you have enough spare cash to just do YOLOs on half-baked ideas. Sometimes you’ll get lucky. I have, but I’ve also gotten plenty unlucky. So I don’t recommend others do it.

Honestly, stock trading sounds so tempting. You’ll see thousands and tens of thousands of dollars of your money swing in a day (on paper) and you’re deciding when to cut losses, or hold on to a hypothetical future gain, or when to capture your gain so you don’t miss out on thousands more. It’s a rush.

However, it doesn’t add much real value to the world, in my opinion. You’re just gaining from someone else’s mistake. Nothing wrong with that—but you’re not actually helping. But at least it’s not boring.

Bitcoin

Basics. Bitcoin is blockchain technology relying on a network of computers communicating with each other to verify what all the other computers are doing. It’s essentially a giant classroom of people passing notes to each other, except you can talk to anyone else in the circle to look at the notes being passed, and they have to show you.

The idea is you don’t have to trust anyone else in the system because everyone can see what everyone else is doing, and no one can make anyone else do anything. It’s totally voluntary, and totally trustless.

All I see is money baybeee.
FYI bitcoin is only digital; there are no physical bitcoins. So if someone tries to sell you these, punch them in the mouth (not legal advice).

This system exists outside of normal investing. So why do the same people tend to talk about it? Because you can trade bitcoin for fiat currency (AKA dollars, pounds, pesos). Unlike dollars, which a government can just decide to make more of, one bitcoin is made every 10 minutes, and that’s it. No matter how much people want them, or don’t want them, there’s only one new coin created every 10 minutes. If you want to know how that works, google “how does bitcoin mining work”.

Bitcoin presents a paradox to aggressive investors. It looks super risky, because you can see the value drop 20% in a week, and then go up 25% the next. It doesn’t just sit still and safe like cash in the bank.

Nevertheless, I believe long term it is safer than any single stock out there—or even the market as a whole.

A quarter of all USD in circulation was made in the last year. Pause. That statement is too dry to be directly understood.

Unless you believe the world or the US was 25% more productive last year than the year before, you should feel very alert (unless you don’t have savings). Assuming the US doesn’t get immensely more productive very fast, your cash is on track to be worth dramatically less—possibly 3/4 what it’s worth today.

Sadly, I think it will be a lot worse than that. I am not an economist. Inflation, money supply, and all that jazz is complicated. All I can do is understand that the supply of cash just got massively inflated and the demand didn’t rise at the same rate. Inflation is coming, and my retreat from inflation is into bitcoin.

In years past, during inflationary periods (of which there have been many), it’s assets that are safe havens. Stock is a safe haven. So is real estate, jewelry, businesses (sometimes), and more.

So why do I think bitcoin is safer than an index fund?

First, the 10-year returns on bitcoin are higher than either the market or even any one company.

Considering its rapid rise in 2021, I don’t think one consider BTC to be “done” yet. My personal thesis is it will reach $100k USD by end of year—but this is not investing advice.

Second, it has incredibly value as a currency to itself and transfer vehicle. These are technically two different reasons, but related. It’s about ease of use. You can do international transfers today in 30 minutes instead of 3 days. And one day, sooner than you think, you’ll pay for a coffee at a restaurant with bitcoin directly—not with dollars or euros. This will be accomplished through something called the lightning network. Google that if you’re curious. Please be curious.

Third, it is not as widely adopted yet as I believe it will be. Until 9/10 people you know own bitcoin, it will continue to grow. It is my belief that more and more people will begin to educate themselves financially. That’s a big reason why I’m doing this blog. The more they educate themselves, the greater bitcoin adoption will be until it hits critical mass, like that one viral video of the guy dancing.

Fourth, more inflation is around the corner. The 1/4 of all USD stat I quoted earlier isn’t even considering the $1.9 trillion bill in Congress right now. And if we’re approving trillions this easily, and it’s not on every headline in the country (but instead something about the Royal Family, wtf?) then you can bet your life savings we will be spending trillions more in the future, and probably unaccounted for.

In real life world, I look like a bitcoin fanboy. In bitcoin world, I’m a soft novice. A true fanboy can you give 1,000 reasons to love it, as my friend Allen did.

Alright, to sum it up…

In my opinion:

  • If you have a particular stock you’re excited about, research and invest the appropriate amount.
  • If you’re lazy and just want to retire unremarkably, go with a boring index fund (booooooo).
  • If you see the writing on the wall for inflation and think the US dollar may plummet in value, dump your cash into bitcoin.

I have roughly 30% of my current liquid net worth in cryptocurrency, and ~60% in stock, and none of the stock is in index funds (except retirement because the service I use isn’t self-directed, which I need to change). The other 10ish% is a mix of cash and this terrible real estate investment platform I used which ended up not being as liquid as I thought.

Not all of that crypto is bitcoin, but when I buy more crypto, that’s my priority. I didn’t talk about the others because I didn’t want to overcomplicate it.

This is all meant to help you educate yourself. None of this is financial or investment advice. Think for yourself—that’s the whole point.

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