The recent FTSE 250 market crash may cause some investors to buy other assets, such as Bitcoin for its perceived defensive qualities.
After all, the virtual currency has almost doubled since its March lows while the FTSE 250 has gained just over 25% in the same period.
However, while Bitcoin might look like a great alternative to equities, the market has a long track record of recovery from even its most challenging periods. One sector, in particular, is charging ahead of the rest of the market.
Bitcoin vs tech stocks
Bitcoin’s perceived defensive qualities look attractive compared to other assets in the coronavirus-ravaged economy. But the cryptocurrency appears to be a poor investment when compared to FTSE 250 tech stocks.
Technology companies have been among the biggest winners of the coronavirus crisis. As economies around the world have been placed into lockdown, consumers have become increasingly reliant on technology to help with everyday tasks, such as shopping, meeting friends and completing work.
The coronavirus crisis has forced many companies to change their working practices. And many businesses are now saying they will allow employees to work from home forever. This suggests that our relationship with technology has increased dramatically over the past few months and is unlikely to go back to the way it was before the virus struck.
FTSE 250 opportunities
As such, technology companies that have been big winners over the past few weeks, are likely to see continued growing demand for their products and services over the next few years.
For example, shares in FTSE 250 IT infrastructure solutions provider Softcat are up nearly 40% from their March low.
Analysts are expecting the company to report high-single-digit earnings growth this year on the back of increased demand for its products and services.
Other examples include security software business Avast, Computacenter and Electrocomponents.
The significant advantage these FTSE 250 tech companies have over Bitcoin is the fact that they produce cash flows.
Bitcoin is only worth as much as buyers and sellers are willing to pay for it. This makes it difficult to value. The price of the cryptocurrency will only increase if there are more buyers than sellers. Unless it continues to gain traction as a store of wealth, this may never happen.
On the other hand, FTSE 250 companies produce cash flows. This makes them easier to value, and these cash flows should grow over the long term.
Indeed, as the world becomes increasingly reliant on technology and technology solutions, it seems highly likely that earnings will continue to grow steadily for the foreseeable future.
As these cash flows grow, company valuations should increase, pushing up the share price. That suggests investors should see steady returns over the long run.
Bitcoin does not offer the same kind of long-term potential. Therefore, it may be best to avoid the cryptocurrency.