Cryptos vs. Marijuana Stocks: Who Will Beat the Market in 2018?
Cryptocurrencies vs. Marijuana Stocks: Which Has the Better Value?
It’s always an exciting time when the market has not one, but two extremely high-growth emerging industries coming into their own around the same time. In this case, investors are lucky enough to have both cryptocurrencies’ and marijuana stocks’ potential to choose from. They are both high-volatility sectors with opportunities to double, triple, or even quadruple your money.
But with capital being a finite resource, investors need to consider things like cryptocurrency prices and marijuana legalization, alongside a whole host of other factors, when deciding where to allocate their money.
Both of these industries are some of the most exciting—and unpredictable—around. In fact, that’s why I have been covering them in Profit Confidential. While the technical analysis is always important, the news does play an outsized role in these industries.
Whether it’s marijuana legalization in Canada or countries talking about regulating cryptocurrencies, there are just so many moving parts in these sectors that virtually any investor interested in getting involved with these assets needs to have a keen awareness of the often-sudden developments that can lead to triple-digit gains just as quickly as they can sink an investment by over 50%.
But if that extra bit of volatility doesn’t dissuade them, savvy investors can stand to make a pretty penny.
Is the Crypto Market in a Bubble?
Probably the most discussed aspect of cryptocurrencies in 2018 is whether these assets are, in fact, in a bubble that has burst (or is still continuing to deflate).
Looking at the Bitcoin price crash, it’s hard not to side with the cryptocurrency bears. When the price was skyrocketing passed $20,000, prophets and doomsayers came out of the woodwork, each with increasingly radical positions.
The staunchest bulls knocked around some truly astonishing numbers too, with some putting the value as high as $100,000 in 2018. (Source: “Bitcoin headed to $100,000 in 2018, says analyst who predicted last year’s price rise,” CNBC, January 16, 2018.)
At this stage, it’s looking like the cryptocurrency bears were right. Bitcoin has been absolutely slaughtered in 2018, down by more than half of its peak of over $17,000 to about $8,000 these days.
Chart courtesy of TradingView.com
Of course, if you’re an investor who got in at $1,000 (or just about that) in 2017, you’re still laughing. But that doesn’t change the fact that a whole lot of money was lost on cryptocurrencies in 2018.
I think at this point it is safe to say that there was certainly a cryptocurrency bubble. Too many people were throwing tons of cash at anything with “blockchain” or “crypto” in its name simply because they wanted that 10x possibility. The hype and inflated value was inevitably going to lead to a crash.
Even today, as I write this piece, over $62.0 billion of market capitalization was wiped out in a single day. The marijuana market is volatile, sure, but nothing trumps cryptocurrencies for large swings.
So what accounts for the massive drop-off? It all comes back to the news.
Google has banned cryptocurrency-related advertising. Considering that Google is the world’s largest digital advertiser, this is very bad news for the sector and will likely cost them thousands, if not millions of mom-and-pop investors as time goes on. (Source: “Over $60 billion wiped off value of cryptocurrencies in 24 hours as bitcoin slide continues,” CNBC, March 15, 2018.)
Google has even gone so far as to ban initial coin offerings (think initial public offerings, but for cryptocurrencies), cryptocurrency wallets (where one stores online assets), and cryptocurrency trading advice.
Yes, the hammer came down swift and hard on cryptocurrencies from Google, and it is exactly these types of events that can cause the price to fluctuate with such unpredictability.
And we haven’t even gotten into all the other aspects of cryptocurrencies that only make it more unpredictable, like how the cryptocurrency exchanges work (the biggest exchange was hacked in 2014 and led to a massive wipeout of value), with some accepting different coins when assets split, and others being banned in certain countries.
Then you have the fact that Bitcoin is still vulnerable to online thieves who use everything from high-level security hacking to methods like bio-hacking (where they use human incompetence rather than computers against you) to fish away your investments.
These aren’t everyday occurrences, mind you, but they happen with enough frequency that investors ought to be aware.
There are plenty of reasons to be both for and against cryptocurrencies. You have the potential to make gains that would make even most marijuana companies blush, but, at the same time, you’re going to be taking on a heightened level of risk that simply may be unacceptable to you.
Succinctly put, there is no industry in my opinion that has a higher risk/reward dynamic than cryptocurrencies. Massive jumps and blood-cooling falls are part and parcel of the sector.
In terms of long-term buy-and-hold strategies, it’s very difficult to recommend cryptocurrencies without a mountain of caveats. From Ethereum to Bitcoin to all of the new coins out there, there are great buys if bought and sold at the right time, but it’s almost impossible to accurately predict where Bitcoin will be in the next few years.
For investors asking “Are cryptocurrencies safe now?” that’s really the wrong question. You’re getting into cryptos for the volatility, so you need to be willing to bear those risks. Otherwise, marijuana stocks may be more your speed.
Marijuana Stock Forecast
Marijuana stocks in 2018 have also faced a downturn, although not nearly as rough as the one experienced in the cryptocurrency market.
The year began with many of the industries’ biggest companies flying on high double-digit, even triple-digit, gains over several preceding months. But a correction came hard and fast in January, dropping many stocks several dozen percentage points.
The downturn continued through February and may still be in effect, although it has shown signs of letting up in March.
Chart courtesy of StockCharts.com
But here’s the thing about marijuana stocks: it is a volatile market, but it’s one that is far more predictable than cryptocurrencies.
Yes, they share some of the same problems. Namely, both are new prospects that countries are figuring out how to handle from a regulatory perspective, with marijuana laws in 2018 every bit as confusing in some circumstances as they were in 2017 (just look at the U.S., where the drug is illegal federally, despite some states having recreational marijuana legally available).
The major difference is that it’s easy to understand marijuana. We all get what it is, what it does, and why people want it. Cryptocurrencies are decidedly more esoteric. The average person will be unable to accurately explain the ins and outs of blockchain technology—of that, I can guarantee. But almost anyone can explain what weed does: it gets you high.
My point is that legal marijuana is in a volatile market, yes, but it’s one that is many degrees more predictable, safer, and better suited for long-term investment strategies than is the cryptocurrency market.
Marijuana legalization is on the horizon in Canada, and more countries are beginning to see the light and relax their laws against the drug. Despite the downturn, there’s still a lot of potential in the marijuana market, and the remainder of 2018 is likely to be strong for the sector.
Cryptocurrencies, on the other hand, require a far more watchful eye. While it is highly possible that prices will once again soar into the heavens, it’s also a strong possibility that they could all but evaporate.
Marijuana companies, on the other hand, are not going to disappear anytime soon. They may face setbacks, certainly, but a total industry-wide collapse is simply far less likely.
Analyst Take
I may be biased, seeing as how I write about the marijuana market more than cryptocurrencies these days, but I’d suggest that most investors would be better suited buying marijuana stocks over cryptocurrencies.
Both industries offer promising gains, but marijuana stocks have the added protection of being based on a product that we know people want. We also understand that countries are working out how to integrate the sale of marijuana into their legislation.
Marijuana and cryptocurrencies are both subject to hype and inflation, due to them being “exciting” assets to laymen investors.
What I mean is, while blue-chip dividend stocks aren’t something that gets people talking, Bitcoin (it’s, like, computer money, man!) and marijuana (it’s, like, drugs, man!) capture the public consciousness and, therefore, will get, shall we say, less-informed investors throwing money in, due to hype.
That, of course, leads to bubbles and corrections. But, at the end of the day, the value proposition of marijuana is real, and for my marijuana stock forecast in 2018, I believe we’ll see strong gains that could persist for years to come—drawbacks and all.
Weed sales are up and revenue is up. There are numbers you can point to in order to see that marijuana is for real. When it comes to cryptocurrencies, you simply can’t make the same kind of assurances.
