Bitcoin vs. Marijuana Stocks: Which Is the Better Bet?

Are speculative investors better off buying Bitcoin or marijuana stocks like Canopy Growth Corp (TSX:WEED)(NYSE:CGC)?

| More on:
question marks written reminders tickets

Image source: Getty Images

In 2017, Bitcoin was the breakout investment of the year. In 2018, Marijuana stocks stole the show. Now, in 2019, they’re both back with a vengeance. Since January 1, Canopy Growth (TSX:WEED)(NYSE:CGC) has risen 54%, while Bitcoin is up 12% from its December low. With other marijuana stocks delivering returns similar to Canopy’s, this comparison serves as a pretty good yardstick for how pot and Bitcoin have compared.

So far, it looks like weed is easily beating Bitcoin in 2019. However, the year is young. Both Bitcoin and weed stocks have had dramatic swings up and down over the past five years, and in the months ahead, anything could happen. Although it’s impossible to predict which of the two speculator favourites will ultimately prevail, it’s possible to come up with a likely short-term scenario. We can start by looking at historical returns.

Long-term returns

As we’ve already seen, marijuana stocks have got Bitcoin beaten in the short term. However, Bitcoin absolutely trounces weed in the long term; since January 2013, Bitcoin is up 29,000% — better than any marijuana stock rally ever observed. Even Bitcoin’s 2017 rally saw it rise 1,000%, which is better than Tilray’s 755% post-IPO rally.

Going off of historical returns, it’s clear that Bitcoin has a higher “theoretical” max return than marijuana stocks. Whereas weed stocks are anchored in fundamentals to an extent, Bitcoin is an almost entirely speculative vehicle that people buy because they think it will go up. As long as this kind of speculative faith in Bitcoin remains, it can reach heights that marijuana stocks can’t touch — as history amply shows.

Marijuana stock fundamentals

There’s plenty of reason to believe that marijuana stocks can still go up. First and foremost, they’re growing like lightning: in its most recent quarter, Canopy grew its earnings by 4,000% year over year, while Aurora Cannabis grew revenue by 430%. With earnings and revenue going up like that, there’s nothing theoretically stopping marijuana stocks from continuing with high double-digit returns. However, it’s unlikely that future returns will be like past returns, as these stocks are now trading at 80-100 times sales.

What drives the price of Bitcoin?

It’s harder to appraise the price of Bitcoin, as one can’t speak of its “fundamentals” at all. However, its price is driven by demand, which is driven by basically two things: speculators who buy wanting the price to go up and black market participants who use it as a currency in illegal markets. Wild speculative activity based on extreme optimism isn’t anchored by anything, so the speculative demand for Bitcoin could send it to basically any stratospheric price you can imagine. Black market use ensures that Bitcoin will never go to zero, but that alone won’t produce the wild volatility seen in 2017. Artificial scarcity is also a factor in Bitcoin’s price: because a limited number of coins exist, the price goes up as more people want to buy them.

Factoring all of these considerations into account, it’s clear that marijuana stocks are a “safer” bet than Bitcoin, since their price is more grounded in value. However, should speculative interest in Bitcoin resume again, it would have more possible upside than weed stocks, because there’s no limit to how high a totally unregulated speculative asset can go.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned.

More on Cannabis Stocks

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Has Been on a Roller Coaster: Is it a Good Buy?

In their relatively small lifetime, most cannabis stocks in Canada have seen both extreme highs and massive slumps. But their…

Read more »

Medicinal research is conducted on cannabis.
Cannabis Stocks

Canopy Growth Stock Surged 100% Last Month: Is It a Good Buy Now?

Canopy Growth soared more than 160% last month. Can the TSX cannabis stock continue to mover higher in 2024?

Read more »

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

Why Canopy Growth Stock Could Double in 2024

Canopy Growth (TSX:WEED) stock saw its share more than double in the last two weeks. So, can it do it…

Read more »

Coworkers standing near a wall
Cannabis Stocks

Why Is Everyone Talking About Canopy Growth Stock?

Canopy Growth stock (TSX:WEED) saw shares surge in the last two weeks for a variety of reasons investors can dig…

Read more »

Pot stocks are a riskier investment
Stocks for Beginners

Why Shares of Cannabis Stocks Are Rising This Week

Cannabis stocks received a boost this week as the White House urged the drug enforcement administration to reschedule the drug.

Read more »

A person holds a small glass jar of marijuana.
Stocks for Beginners

Why Canopy Growth Stock Jumped 16% on Wednesday

Canopy Growth stock (TSX:WEED) is up 16% on Wednesday, adding to a surge of 60% growth in the last week…

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Is the Worst Over for Canopy Growth Stock?

Down 99% from all-time highs Canopy Growth stock has burnt investor wealth and remains a high-risk investment.

Read more »