In recent months, Bitcoin (CRYPTO: BTC) and GameStop (NYSE: GME) have actually both been hot subjects in the investing world. That’s not unexpected, considering both have created amazing returns in a very brief time period: In the last 12 months, Bitcoin’s value is up 700% and shares of GameStop have actually risen over 5,000%.

Nevertheless, I wouldn’t purchase GameStop stock with free money. Bitcoin, on the other hand, looks a better long-lasting investment. Here’s why Bitcoin is the much better buy in between these two entities.

Bitcoin: The biggest cryptocurrency

Bitcoin is by no suggests a safe investment– cryptocurrency, in basic, is highly unpredictable, and Bitcoin’s worth has actually been cut in half several times in the last decade. However, it has a few qualities that could make it better over time.

Image source: Getty Images. First, Bitcoin benefits from deficiency. Each time a miner processes a block of Bitcoin transactions, they receive a reward. Presently, the benefit is 6.25 Bitcoin. Nevertheless, that number is cut in half every 210,000 blocks, suggesting that the benefit will eventually be zero. That produces a finite supply– just 21 million tokens will ever exist, and the last one is anticipated to be mined in the year 2140.

To comprehend why that matters, let’s think about another finite property. Gold has value since it is scarce– there is just so much gold on earth, so individuals want to pay high rates to own it. Bitcoin benefits from the very same economic principles. In reality, Bitcoin is typically described as digital gold.

Second, Bitcoin is the largest cryptocurrency, with a market cap of over $1.1 trillion. By comparison, Ethereum is the 2nd largest, with a market cap of almost $250 billion. Additionally, Bitcoin is the most popular cryptocurrency in regards to the number of active addresses, with approximately 1.2 million. Again, Ethereum ranks 2nd, with almost 510,000.

That appeal provides Bitcoin an advantage. As more merchants and payment processors support crypto transactions, they are likely to adopt the most popular token(s) first. In other words, Bitcoin will probably be at the top of every list. That means Bitcoin will end up being mainstream quicker, which must create a network impact that drives its appeal even greater.

GameStop: On the wrong side of history

In 2015, software application sales represented 39% of GameStop’s profits, while hardware and collectibles represented 50% and 11%, respectively. That’s a big problem. To understand why, let’s go back in time.

In 1999, salesforce.com originated the software-as-a-service (SaaS) market, picking cloud-based delivery over physical discs. Today, SaaS has actually become mainstream due the efficiency and scalability for publishers, and the benefit for consumers.

Similarly, after peaking in 2005, DVD sales have actually progressively decreased, changed by digital purchases and digital leasings. In this case, the benefits of cloud-based shipment have caused the increase of streaming services like Netflix. Do you see a pattern?

In 2010, 71% of video games were sold as physical discs, but that number dropped to 17% by 2018, according to the Entertainment Software Association. Again, the rise of cloud-based streaming services– believe Microsoft’s Xbox Video game Pass, Alphabet’s Google Stadia, and NVIDIA GeForce Now– has actually powered this trend.

To be reasonable, some of GameStop’s software income comes from digital downloads. However the shift towards digital delivery is still bad news for the business. Enterprises like Microsoft and Alphabet have a significant advantage in terms of facilities and capital, suggesting they are much better placed to serve as distribution platforms.

Not remarkably, GameStop’s financial efficiency has actually degraded in the last few years.

Metric

2017

2020

Change

Income

$8.5 billion

$5.1 billion

(16%)

Complimentary Capital

$322 million

$63.7 million

(42%)

Source: GameStop SEC Filings.

It’s worth pointing out that the business’s revenue and free capital were already trending downward before the pandemic in 2020, however that certainly made things even worse. Regardless, there might be more difficulty on the horizon.

Some industry analysts have questioned whether video gaming consoles are needed. After all, mobile gaming is the biggest and fastest-growing sector of the market, according to NPD Group. Furthermore, the increase of streaming services indicates consumers can take pleasure in high-quality gameplay on regular PCs. As that trend continues to acquire traction, it could cut deeper into this retailer’s leading line.

This short article represents the viewpoint of the writer, who might disagree with the “main” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis– even one of our own– assists all of us believe seriously about investing and make choices that help us end up being smarter, better, and richer.