In just a few short weeks, the U.S. stock market and the global crypto market have suffered sizable sell-offs as investors grappled with slowing growth, valuation concerns, a new COVID-19 variant, inflation, and other headwinds.

Industry watchers that have patiently waited for prices to come down are in luck. But even fully invested folks may be wondering if it's best to invest in crypto or stocks in 2022 and beyond. Here's a breakdown of both markets and the best buys in each.

An artist rendering of crypto mining, digital networks, and blockchains.

Image source: Getty Images.

A good time to buy "blue-chip" cryptos like Bitcoin

Fear of missing out (FOMO) is a dangerous emotion that can pressure us to chase skyrocketing valuations and cloud our judgment. If you've felt like you've missed out on Bitcoin (BTC 0.10%) and Ethereum (ETH 1.21%), you're not alone.

Just like stocks, investing in cryptocurrency has its risks. And picking specific cryptos, especially smaller altcoins, can be feast or famine. Solana (SOL 1.31%) has captured investors' imaginations for its over-12-fold return so far in 2021. But for every Solana-like success story, there are dozens, if not hundreds, of failures.

If you're new or unfamiliar with crypto, simply going with the industry leaders is probably the best way to expose yourself to an attractive risk/reward profile. Bitcoin has the reputation of being complicated, risky, and has long been accused of being a bubble. But at its core, its investment thesis is beautifully simple.

Bitcoin has a market cap of $925 billion. It sounds like a lot until you realize what its value could grow to become over time. Bitcoin is decentralized, meaning its network is supported by thousands of independent nodes. Unlike fiat currencies, it isn't controlled by any single sovereign nation or tied to one economy. Bitcoin has never suffered a major hack, and is probably one of the safest, most liquid, and most tradeable stores of value that exists on the planet.

In short, the leading cryptocurrency has the attributes that make it an ideal currency in countries that lack a stable method of payment. It is a vessel for wealth for folks in developing and developed economies. It is also arguably a better inflation hedge than gold. Add it all up, and bitcoin has the potential to be worth more than any single company -- and could one day be worth more than the world's total gold supply (which is valued at roughly $10 trillion). And since it has a fixed supply of 21 million coins, about 19 million of which are already in circulation, bitcoin prices won't have to fight inflation effects.

Few investment opportunities offer a feasible long-term gain of 1,000%. Bitcoin is one of them. And considering it's finally back down to the low $50,000 range, it could be time for investors to start a small position and dollar-cost average into bitcoin.

Getting selective in the stock market

A lot of growth companies have seen their share prices downright annihilated in recent months. So when investors glance at an index like the S&P 500 or the Nasdaq-100 and notice both are still up big for the year, they may scratch their heads. The reasoning is because these indexes are market-cap weighted, meaning the large companies contribute the bulk of gains and losses. And this year, the largest companies are all doing quite well.

For example, the 10 largest stocks in the S&P 500 are up an average of 50% year-to-date, and they make up nearly one-third of the index.

As a group, Apple (AAPL -1.22%) Microsoft, Alphabet, Amazon, Tesla, Meta Platforms, and Nvidia are crushing the market this year. Collectively, they make up -- wait for it -- over 60% of the Nasdaq 100 index. This is all to say that until these companies suffer major declines, stock indexes can only go down so much.

Unlike the crypto market, where buying the largest names seems like the best all-around option, you could argue that the opposite is true in the U.S. stock market. Companies like Apple have hinted at declining demand for new iPhones, supply chain challenges, and slowing growth. And yet, investors have flocked to its stock as a place of safety amid market volatility, ignoring cracks in the company itself. Therefore, blue-chip companies like Walt Disney (DIS 0.16%) or PayPal (PYPL 0.34%) that are down over 35% from their highs (but offer plenty of long-term upside) seem like better all-around buys.

Combining safety, value, and growth

To answer the general question of whether it's better to take advantage of the crypto crash or the stock market sell-off, I would actually argue the crypto crash is a better buy -- Bitcoin and Ethereum are down a lot from their highs but they have so much growth ahead. However, if the question is whether it's better to buy crypto or certain blue-chip stocks, I would say blue-chip stocks that have already sold off are going to make more sense for most investors.

We discussed Disney and PayPal, but there is actually a long list of strong industry-leading companies that are down 20% or more from their highs. From dividend and value stocks like Lockheed Martin to downtrodden leaders in attractive industries like cybersecurity or the gig economy, the market is ripe with buying opportunities outside of the largest tech stocks. 

As with all investment decisions, it's important to select the companies or cryptos that best fit your risk tolerance so you're eligible for the right amount of reward for the amount of risk you are comfortable accepting.