For the past 10.5 months, Wall Street has been enjoying an incredible rally. For instance, the benchmark S&P 500, which tumbled 34% in less than five weeks during the first quarter of 2020, ended the year higher by more than 16%. That’s nearly double its average annual return over the past 40 years. The tech-heavy Nasdaq Composite performed even better.
But neither index has been able to hold a candle to the returns offered by the largest cryptocurrency in the world by market cap, Bitcoin (CRYPTO:BTC).
Bitcoin may be soaring, but it’s a flawed investment
Over the trailing year (through Feb. 9), Bitcoin is up 371%. Back out a bit further and you’ll see Bitcoin has delivered gains of approximately 12,100% over the trailing five years. Put into another context, if you had invested $8,200 into Bitcoin on Feb. 9, 2016, you’d have more than $1 million as of Feb. 9, 2021.
This rally has predominantly been based on the premise that Bitcoin challenges traditional monetary theory. Specifically, optimists point to its 21 million token limit, its increasing utility among merchants as an accepted form of payment, and its superior blockchain, which can expedite the settlement of payments (especially cross-border payments), as reasons for the rise.
Bitcoin has also received plenty of attention following big buys from Elon Musk’s Tesla Motors and Michael Saylor’s MicroStrategy. Tesla invested $1.5 billion into Bitcoin this past week, with MicroStrategy buying more than $1.1 billion worth of tokens in recent months.
While there’s no denying that Bitcoin has plenty of near-term momentum, it’s an asset that appears to be filled with flaws and misconceptions. In no particular order:
- Bitcoin’s scarcity is held together by loose promises of community consensus that its token count won’t rise, which is hardly concrete.
- There are virtually no barriers to entry in developing blockchain or tethering a digital token to an underlying ledger.
- Bitcoin lacks game-changing utility. Though a few big names (Tesla) may choose to accept tokens as a form of payment, more than 99.99% of U.S. businesses with at least one employee don’t currently accept Bitcoin.
It’s my belief that emotions and technical analysis (i.e., pretty charts) are all that keep the bitcoin train going. In other words, there’s nothing tangible, sustainable, or investable about this rally.
This trio of unstoppable stocks are much better buys
Rather than investing in Bitcoin, my suggestion would be to take your money and put it to work in the following trio of unstoppable stocks, all of which offer tangible competitive advantages and sustainable growth prospects.
The irony is that one of the most unstoppable stocks investors can buy right now, Square (NYSE:SQ), is a company that’s been somewhat benefiting from Bitcoin’s popularity. But before diving into that connection, let’s first look at Square’s most mature operating segment: the seller ecosystem.
Chances are that you’ve come across a Square point-of-sale device at some point over the past nine years. The company primarily provides its payment processing devices and analytics tools to small businesses and has seen the gross payment volume (GPV) traversing its network catapult from $6.5 billion in 2012 to $106.2 billion in 2019.
An interesting development in recent quarters with the seller ecosystem is that larger merchants (as measured by annualized GPV) are hopping onboard in increasing numbers. In the September-ended quarter, nearly 31% of GPV came from merchants with at least $500,000 in annualized GPV, up from 24% in the third quarter of 2018. Since this is a merchant fee-based operating segment, greater adoption by bigger merchants would further boost growth and gross profit.
Arguably even more exciting is Square’s other operating segment, Cash App. This digital peer-to-peer payment platform grew its monthly active…