Stocks (sometimes known as shares) are some of the most well-known investment options around. Everyone has heard of the stock market, and because fiat money is such a bad store of value, a lot of people from all over the world feel compelled to speak with a money manager, in the hope of generating some half-decent returns on their hard-earned money.
On the other hand, Bitcoin is one of the fastest-growing investments in the world and is considered by many to be the future of money. Investing (saving) in Bitcoin is rapidly gaining mainstream acceptance, and the original cryptocurrency has been increasing in popularity since its creation in 2009.
Bitcoin and stocks are both popular investment options. Both can be bought and sold in a similar manner and both carry risks and rewards for those willing to participate. Perhaps, the best feature of Bitcoin is that it is a decentralised network composed of thousands of individual nodes around the world, making it more democratic, more resilient, and fairer in its monetary policy than any given stock.
We’ve put together this quick guide to help you decide which investment vehicle may be most suitable for you—let’s dive into some of the differences and similarities between Bitcoin vs. stocks.
Type of Asset
The first thing we need to unpack is that Bitcoin and stocks, while similar in many ways, are fundamentally different types of assets.
Stocks fall into the category of ‘equities’ – this means owning stock entitles you to a share of whichever company you have invested in. For example, buying Apple stock buys you equity in Apple Inc. The value of your stock is dependent on the market’s valuation of the company.
Bitcoin is money and bearer instrument. It is the first digital money of its kind. While most regulators worldwide are yet to categorise this kind of asset properly, Bitcoin is more akin to a traditional currency than a stock. Bitcoin is not a company. You can’t own a share in “Bitcoin Inc.”because no such entity exists.
Another key difference here is that when you ‘own’ a stock, you’re entitled to a share of somebody else’s company. Conversely, because Bitcoin is a bearer instrument, and no single person or group of persons controls the Bitcoin network, this means the Bitcoin you hodl in self-custody really is yours — not just a share of somebody else’s. Bitcoin is a bearer instrument, like cash in your wallet, which gives you complete control and ultimate responsibility over your wealth.
Regulations, Ownership, and Fees
There are some similarities between Bitcoin vs stocks. In most countries, both assets are taxed when sold for a profit. Similarly, corporations that buy and sell stocks must comply with all relevant local regulations, and this also applies to Bitcoin.
Beyond this, however, there are far more differences than similarities between Bitcoin and stocks. To buy or sell stocks, you are required to go through a regulated stockbroker. These broadly fall into online ‘discount’ broker and traditional, ‘full service’ stockbroker categories.
Traditional brokers are usually long-standing, reputable financial institutions. They provide a comprehensive service and frequently charge a hefty fee for their trouble. They often impose minimum capital requirements, and these cost factors create a barrier to entry for many new investors.
Over the last few years, modern online versions of stock brokers have emerged to capture more of the investor market share not already served by traditional brokers. These platforms offer less prohibitive fees, allowing more people to get into the stock market. However, these services are far from perfect.
During the GameStop saga in early 2021, online brokers, most notably Robinhood, reportedly suspended the trading of specific stocks. This move sounded alarm bells throughout the amateur investor community, as traders realised that they didn’t really own or control their stock as much as they thought.
Bitcoin, although subject to some regulatory scrutiny, is truly decentralised. Nobody can stop you from sending, storing, selling, or buying more when your Bitcoin is in your personal wallet. Self-custody is one of Bitcoin’s strongest suits.
If you purchase Bitcoin through Amber, you can benefit from exceptionally low fees, too. You will never pay more than 2% on transactions, and if you sign up for Amber Black, that fee will disappear entirely. You’ll also get a more tailored experience and the ability to set up intelligent automation that lets you buy Bitcoin without lifting a finger.
Thus, buying Bitcoin avoids the two main pitfalls of buying stocks—high fees and conditional ownership.
Risk vs. Reward
People buy both Bitcoin and stocks in the belief that the price of their holdings will increase in the future. Of course, it’s impossible to predict the future, so this speculation carries with it the risk that the value of the assets will fall or even vanish.
While stocks are subject to risk regarding speculation about a company’s future success, people invested in Bitcoin, like those of us at Amber, believe that Bitcoin will become the reserve currency of the world in the future.
Accordingly, many Bitcoin holders believe they have essentially purchased the money of the future at a significant discount… Imagine, someone collecting gold ingots before gold was collectively accepted as a currency or store of value. Bitcoin holders are betting that due to the inherent properties of Bitcoin, the world will select Bitcoin as the universal value storage and transfer mechanism.
Nevertheless, some would argue that the risk carried by Bitcoin is greater than that of stocks, due to the strong historical performance of the stock market. Index funds such as the S&P 500 (a fund composed of the 500 largest American companies) have a long track record of providing strong returns, whereas Bitcoin has only been around since 2009.
Stocks are also less volatile than Bitcoin in the traditional sense. A diversified portfolio or an index fund will generally not produce sharp declines in value, which may be more palatable for risk-averse investors. However, it is important to bear in mind that this decreased volatility also implies less dramatic moves to the upside: price surges and drops tend to be much less pronounced.
On the other hand, Bitcoin is immune to several risk factors that affect the stock market. Remember, Bitcoin isn’t a company, and therefore doesn’t carry any credit risk. Bitcoin also has no headquarters, and its network is geographically decentralised all across the world. This makes it practically impervious to national or political risks, such as 2021’s crackdown in China, which only temporarily affected the price of Bitcoin.
As a cryptocurrency, Bitcoin is subject to some regulatory risk. For example, you run the risk of owning an asset that could be outlawed in your country, as it was recently tried (again) in China (to no great effect). However, as the popularity of Bitcoin grows and more corporations such as MicroStrategy, Tesla, and Square buy and hold BTC on their balance sheets, nation-states like the US become incentivised not to write legislation that would otherwise hurt their domestic economies.
Bitcoin is also built to withstand the economic risk of inflation. With both a fixed supply and an ethos fundamentally opposed to central bank monetary policy, Bitcoin is carving out a reputation as the de facto modern store of value due to its scarce supply cap of 21 million Bitcoin. Soon, it may even displace gold’s role as the final settlement layer between nation states.
Bitcoin vs. Stocks: which should you choose?
How you should invest your money will always be a matter for you to decide. Of course, Amber believes there is a solid case to be made for Bitcoin as a better money and over all investment choice than stocks, for most people.
Bitcoin is one of the best-performing assets of all time. Check out our investment calculator to see how much you would’ve earned if you’d started buying BTC earlier. This endows Bitcoin with a risk-reward profile that simply cannot be ignored.
If you’re ready to dive in, you can make your first Bitcoin purchase in under 90 seconds with Amber.