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Bitcoin vs. the Stock Market Correction in One Chart

Bitcoin and stocks were red hot in late 2017. Now both have cooled off. But one look at a chart of Bitcoin vs. the stock market shows which has more risk.

Think back to the end of last year, when stock prices were at all-time highs and Bitcoin was the exciting new kid on the Wall Street block. Cooler heads knew that both rallies were likely on borrowed time, but only one of them seemed like a truly dangerous investment at such lofty prices. I’ll let the following chart tracking the performance of Bitcoin vs. the stock market (S&P 500) in 2018 reveal which one was which.

Bitcoin vs. the stock market correction, in one chart.

As you can see, even despite a full-fledged stock market correction from February through April, the S&P 500 has been more or less steady, up roughly 1% so far this year. Bitcoin, meanwhile, is down nearly 50% in 2018, and has lost well more than half its value since peaking above $19,000 in mid-December. Now at $7,500, if you drank the Bitcoin Kool-Aid late last year, you likely have a large red stain on your shirt today.

Bitcoin vs. The Stock Market

The moral? Even at their worst, stocks are far less risky than Bitcoin, Ethereum or any other cryptocurrency. Bitcoin is looking like the Pokemon Go, Sanjaya or Jeremy Lin of the investing world—something that seems incredibly important and revolutionary in the moment, but quickly falls into the “15-minutes-of-fame” category.

The U.S. stock market has two full centuries of history, and some of the companies that trade on it go back nearly as long. Bitcoin was created by an unknown entity called Satoshi Nakomoto less than a decade ago. At some point, the track record matters.

Cabot’s Chloe Lutts Jensen saw the Bitcoin crash coming. In an article titled, “The Danger of Investing in Bitcoin and Ether,” presciently written on December 3, two weeks before the Bitcoin crash, Chloe issued the following warning:

“Ether, Bitcoin and other digital currencies can be very rewarding investments (Bitcoin is up a not-too-shabby 183% year-to-date), but they’re still very young markets without the (relative) stability and safeguards of the stock market.”

Those market safeguards include circuit breakers that halt trading once losses reach a certain level. Most brokerages require you to apply for permission before trading stocks on margin. And, if losses start mounting, brokerages can make a “margin call,” essentially asking you for more collateral, rather than immediately selling the position at market prices.

With Bitcoin and Ethereum, there are no such safeguards. They are far more prone to losing 63% of their value in five months, as Bitcoin has since mid-December. And as we’ve found out, when Bitcoin prices go south, they go south fast; when the crash started, it lost $5,000 in a week!

Bottom line: I sincerely hope you didn’t load up on Bitcoin six months ago, when it reached what our Timothy Lutts calls “peak popularity.” And don’t make the mistake of trying to bottom-fish cryptocurrency now. With no earnings, sales, products or identifiable management, it’s impossible to know which way it’s going from here, even after five very bad months.

Meanwhile, stocks have dusted themselves off after a bumpy few months, and are back on relatively stable footing. If you want the potential for high returns and don’t mind taking on a bit of risk, I highly recommend subscribing to any of our growth investing services, such as Mike Cintolo’s Cabot Top Ten Trader momentum-stock advisory or Tim Lutts’ Ten Best Marijuana Stocks newsletter.

You won’t find a cryptocurrency recommendation among our 12 investment advisories. We stick mostly to stocks, and for nearly a half-century, that’s worked well for our subscribers, whose money we’ve helped double 28 times over the years.

Whether you subscribe or not, leave the Bitcoin investing to the people who still play Pokemon Go.


Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week.