Amazon vs. Bitcoin: They’re Worth Roughly the Same, But One Is Better Than the Other

With a market capitalization of more than $2.1 trillion (it was higher just a few weeks ago), Bitcoin (CRYPTO:BTC) is clearly a top asset on the minds of many investors. There are certainly reasons why those seeking greater portfolio diversification may be looking at Bitcoin, either via holding tokens directly or assessing whether a spot or futures-linked ETF is worth considering.

But I thought I’d do something in looking at Bitcoin, and compare this asset class to some of the most consistent growth stocks out there, and see which will ultimately be the better pick for the average investor over a certain time frame. I’ve picked Amazon (NASDAQ:AMZN | AMZN Price Prediction) as a decent proxy, given the fact that the e-commerce and cloud computing giant has a very similar market capitalization (currently $2.18 trillion at the time of writing).

Let’s dive into which asset may be better for which investor type over the long-term, and the pros and cons of holding both assets in one’s portfolio.

Volatility Matters

Whether you’ve taken a traditional finance course or not, most investors can intuitively understand that volatility equals risk. In other words, the larger the percentage moves in a given asset on a day to day, week to week, or year to year basis, the higher the risk profile of such an asset relative to others.

These swings, in which investors can either pocket massive gains (or incur massive losses) is what can drive outsized alpha over an extended period of time. Such has been the case with Bitcoin, with this leading cryptocurrency’s valuation skyrocketing a mind-boggling 171,200,000% since its inception a little more than 15 years ago (that’s not a typo).

Amazon’s return over the past three decades of roughly 275,000% certainly isn’t bad. But these are two very different numbers, and there’s reason why growth investors often choose one over the other.

That said, over shorter periods of time, Amazon has clearly outperformed Bitcoin, particularly during periods of market stagnation or selloffs. Recent turmoil in the banking sector has led to a sharp decline in the value of Bitcoin relative to Amazon and other stocks, with the leading cryptocurrency down more than 13% over the course of the past week, with Amazon’s decline coming at only 0.9%.

So, the investment decision between the two asset classes should rest on specific key metrics, such as expecting holding period and portfolio growth requirements. Viewing these assets as similar over any sort of short-range period could be dangerous, meaning those more conservative investors out there concerned with capital preservation over capital appreciation will clearly choose Amazon over Bitcoin for a one to five year investment time frame.

What About Those Thinking Longer-Term?

As I stated with those previous statistics around very long-run returns for the two assets, it’s clear that Bitcoin has blown Amazon (and really every high-flying growth stock) out of the water. That’s why so many investors remain tethered to Bitcoin and other crypto assets – the return potential for this less-regulated asset class are clearly much better.

Additionally, there are other reasons why investors may choose to hold Bitcoin and other tokens, outside of this asset’s return potential. Whether it’s because such investors want portfolio diversification outside of equities, bonds and other alternative assets, they don’t trust the banking system, or are looking for gold-like complimentary assets to hold as part of an “offense is defense” strategy, there are reasons to consider holding at least some small amount of Bitcoin (and right size this position) over time.

Those who have done so, and kept their Bitcoin exposure to a certain portfolio percentage cap, have likely taken so much in the way of profit over the years that they’re well compensated for their holdings. Of course, whether this dynamic continues from here remains to be seen. But for those thinking long-term, this is the strategy I would encourage investors to consider, in addition to holding some Amazon and other equities in a well-diversified portfolio.

Diversification Wins Long-Term

Ultimately, most of my focus is on the long-term, so in that regard, holding Bitcoin at some fixed portfolio percentage (say, 3%-5%) probably makes more sense than an overweight position in Amazon. That said, investors who hold an index ETF as part of their investing strategy immediately gain 3.7% exposure to Amazon, so these positions would be roughly in line.

I think holding both assets makes the most sense for those with a long-term investing strategy, though for those who may be nearing retirement and may need their nest egg ready for deployment may want to have little to no exposure to Bitcoin, particularly given where we are in this bull market cycle. It all depends on how much time is left in the game for investors.

For those with a reasonable amount of time left (who knows what tomorrow will bring, but hey), Bitcoin is the clear winner.