If you are a risk taker, you might be wondering if you should bet on Bitcoin or marijuana stocks.
Investors in both asset classes have made a killing this year. The world’s biggest and best-known cryptocurrency, Bitcoin, hit a record high of $17,270 on December 12, registering a 20-fold jump in its price for 2017, as millions of new investors were lured by the value of this “digital gold.”
Gains in marijuana stocks are no match to the ones investors made in Bitcoin, but top weed stocks, such as Canopy Growth Corp. (TSX:WEED) and Aphria Inc. (TSX:APH) produced triple-digit returns, which are by no means normal.
Bitcoin and marijuana are two very different asset classes, but both attract investors who want to make a quick buck in highly speculative trading. Let’s find out which one matches your investing style
Market participants are divided over the digital currency’s utility, value, and safety. Some of the top minds in the financial sector are calling cryptocurrencies a fraud and a bubble which is bound to burst.
The world’s most respected stock picker, Warren Buffett, says Bitcoin might be a bubble in the making, as “you can’t value Bitcoin because it’s not a value-producing asset.”
JPMorgan CEO Jamie Dimon called cryptocurrency “a fraud” at a conference presented by CNBC and Institutional Investor. “It’s just not a real thing; eventually it will be closed.”
The self-made millionaire and best-selling author of Money: Master the Game says investing Bitcoin is just like going to Vegas, where you are prepared to lose your bet.
If you believe in the financial wisdom of these top minds, then it makes sense to stay away from this asset class. But if you’re willing to take the chance, then only bet the money you can afford to lose.
When compared to cryptocurrencies, the marijuana industry is in a different speculative territory. There are two big drivers for very rich valuations, which some cannabis stocks enjoy.
One is about the potential legalization of weed in Canada by July 1, and the second is the size of the recreational market. There is no doubt that these companies will benefit once the legalization for the recreational use is in place, but there is still a lot of guesswork on the depth of recreational demand. The estimates of that market vary from $5 to $10 billion.
Having said that, the cannabis market is not that complicated when compared to cryptocurrencies. You are taking a big risk by buying marijuana stocks, but it is possible to make huge gains when the market is ready, and companies have the product to sell.
The biggest vindication for investors in this market came from the recent deal activity, which includes acquisitions, supply deals, and stake sales. Canopy was able to attract $245 million investment from Constellation Brands in October, when it sold its 10% equity stake to the company.
The bottom line
Investing in risky ventures is not forbidden. All you have to decide is how much are willing to lose if things don’t work out in your favour. Marijuana and Bitcoin are both in a bubble territory, but the one in the Bitcoin is of astronomical proportion.
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Fool contributor Haris Anwar has no position in the companies mentioned.