Why Bitcoin Could Outperform Stocks Over the Next 5 Years

They say absence makes the heart grow fonder, but in markets, scarcity often makes prices grow faster. Investors balking at stretched stock valuations, macroeconomic turmoil, and governments drowning in IOUs have a challenging task ahead: Find an alternative store of value that can still compound wealth.

Enter Bitcoin (CRYPTO: BTC), an asset that offers a respite from inflation, and, thanks to a hearty amount of institutional capital flowing in every week, no longer sits at the fringe. If its fundamentals and adoption trajectory hold, the next five years could tilt decisively in its favor, making holders a lot richer along the way.

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Scarcity and debt could be a troublesome cocktail for stocks

Bitcoin's protocol hard-codes a lifetime limit of 21 million coins. That's the foundation for its stability against fiat currencies like the dollar, and it's also one of the main factors that could drive it to outperform against stocks.

Roughly 19.8 million Bitcoins already exist, and April 2024's halving chopped its supply to approximately 478 coins mined per day. That shrinking trickle of supply contrasts sharply with the macroeconomic backdrop, in which global debt climbed to $324 trillion in the first quarter of 2025, a $7.5 trillion jump in three months.

Image source: Getty Images.

The repayment of the interest generated by that debt could be a significant drag on growth across many companies and industries, as it'll reduce the capital they can sock away for the purpose of reinvestment as well as for dividends and share repurchases. And that's before even taking into account the detrimental impact of issues like inflation, which may be rearing its head yet again as a result of the Trump administration's global trade war and tariff policies.

Despite facing this uncertainty and the debt overhang, stocks have rarely been pricier. The S&P 500's price-to-earnings (P/E) multiple hit 28.7 in early June, well above its five-year average, and implying slimmer future returns unless earnings surprise to the upside.

Valuation is not destiny. There are often many reasons why individual stocks are valued richly, most commonly that their fundamentals or business model are so favorable that they can reasonably be expected to outperform the typical business. But when the entire market is looking a bit pricey, that narrative becomes harder to believe, as it implies that everything is going to grow at a moderate to fast clip.

In light of these factors, stocks could struggle to continue to deliver double-digit annual returns as they have for a long time. Rising debt, inflation, and expensive equities create a setup where capital may prefer to flow into a provably scarce asset, where the headwinds to growth aren't as strong.

That asset could well be Bitcoin.

The institutional pivot is in progress

There's some strong evidence that the shift to Bitcoin is already underway, at least to a degree.

The launch of U.S. Bitcoin-holding exchange-traded funds (ETFs) in 2024 unlocked a gusher of capital that has yet to be depleted. Corporate treasuries are following suit. Companies including Strategy and Tesla sit on sizable Bitcoin positions.

The pivot to digital assets has gained momentum, with pension funds and wealth managers increasingly open to alternative stores of value. Recent regulatory shifts have given these players the green light to add Bitcoin to their portfolios, even if only in small amounts. This trickle of capital could quickly become a torrent if returns on traditional assets falter.

Even modest portfolio allocations from pensions and wealth managers could inject trillions in demand for the coin. And the more buyers that show up, the less Bitcoin there is to go around.

Stocks cannot engineer such a sudden scarcity. Companies can retire shares, but repurchase programs ebb when profits falter. Bitcoin's floating supply, by contrast, tightens mechanically over time regardless of the macroeconomic conditions or the ability of businesses to generate returns in excess of their cost of capital. That sets the stage for a supply shock for Bitcoin.

If macroeconomic anxiety nudges just 1% of the $40.3 trillion in U.S. equity assets into Bitcoin, demand would immediately overwhelm available supply, driving outsize returns for holders.

It's not guaranteed to happen, as regulatory U-turns or prolonged risk-off regimes could clip near-term gains, but the asymmetry is clear. The odds of Bitcoin being a better bet than stocks over the next five years are higher than ever before.

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Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Tesla. The Motley Fool has a disclosure policy.