This has been an odd year for Wall Street and the investment community. The first quarter was nothing short of a dumpster fire, with concerns surrounding the coronavirus disease 2019 (COVID-19) pandemic pummeling equities. Comparatively, the subsequent eight months have featured a nearly unstoppable rally. When 2020 does come to a close, the benchmark S&P 500 may wind up delivering pretty normal gains (based on its long-term average) for investors.
But this hasn’t been the case for cryptocurrencies like bitcoin. A shift in sentiment catapulted the largest digital token on the planet to a record high this past week, putting it within a stone’s throw of eclipsing $20,000. On a year-to-date basis, bitcoin is up 161%, through Dec. 1, 2020. That’s approximately a 150 percentage-point outperformance of the S&P 500.
Yet you won’t find this Foolish investor buying into the bitcoin hype now or potentially ever. That’s because I view bitcoin as having a number of fundamental flaws.
For example, bitcoin is often touted for its scarcity, much like gold. However, there’s a big difference between a commodity having physical scarcity and a digital token having scarcity because of how its computer code was written. We can’t create more gold than what we can mine on Earth. By comparison, the crypto community can, in theory, change the code governing bitcoin’s 21 million token hard cap. In other words, it’s perceived scarcity and not actual scarcity.
The bigger beef I have with bitcoin is the token’s limited utility. Even if it were to hit $20,000, giving its mined supply a value of $371.2 billion, this wouldn’t even remotely come close to having game-changing transactional potential. Roughly 40% of the 18.56 million mined bitcoin are being held tightly by investors and aren’t in circulation. This leaves maybe $223 billion worth of bitcoin in circulation for payments. That’s about one-quarter of 1 percent of global gross domestic product for 2017.
I don’t even agree with the premise of buying digital tokens. The real value of the crypto revolution is the underlying blockchain technology. Buying bitcoin gives investors zero ownership in the underlying digital ledger that’s fueled cryptocurrency hype for the past decade.
Personally, I’d rather buy the following three hypergrowth stocks than own bitcoin.
Square
Interestingly, one of the three fast-growing stocks that I believe can run circles around bitcoin is actually a company that’s been generating big-time revenue from the most popular cryptocurrency — Square (NYSE:SQ).
For close to a decade, Square has operated as a payment facilitator for small businesses. The company’s seller…
Read More: Forget Bitcoin: 3 Hypergrowth Stocks I’d Rather Buy