Bitcoin is on the rise again. Having hit a low of $6,620 back at the start of April, the cryptocurrency is up more than 40% in price in a matter of a few weeks.
Should those who missed out on the last year’s huge rise get in while they can? I’m still not convinced.
My beef with bitcoin
My biggest concern with bitcoin (and any cryptocurrency, for that matter) remains its sheer lack of stability. A brief look at its price over the last year should tell you a lot about just how volatile things can get.
Back in May 2017, a single bitcoin would cost around $1,500. A little more than seven months later and the very same coin was priced at well over $19,000. That sort of rise was never going to be sustainable and so proved to be the case.
From its mid-December highs — when everyone, their dog and their dog’s dog appeared to have caught the cryptocurrency bug — to the beginning of February, bitcoin plunged around 65%, leaving many speculators nursing significant losses.
The fact that bitcoin is still 50% lower in value than its pre-Christmas peak doesn’t mean that it’s worth buying, however. With no underlying asset to speak of and none of the fundamentals that usually guide investors, its price is wholly dependent on human psychology — more specifically, fear and greed.
That’s not the Foolish way of doing things.
A far better bet
Taking into account the volatility that comes hand in hand with owning a cryptocurrency, I think the vast majority of those considering bitcoin would be better served purchasing stock in a company that benefits from the hype surrounding it. Enter spread betting provider Plus 500 (LSE: PLUS).
Last week’s Q1 trading update was yet more proof as to why this company has increased over 230% in value over the last year.
Thanks to a sharp increase in the number of active and new customers, revenues over the three months to the end of March came in 284% higher (at just under $300m) than the same period last year. That’s equal to 68% of all revenue achieved in 2017.
Earnings before interest, tax, depreciation, and amortisation (EBITDA) came in at $237.3m — a stonking 418% higher than in Q1 2017.
Having done so well, it’s perhaps understandable if some are tempted to take profit and run. Even the company was keen to stress that market conditions had returned to “more normal levels” in March and April and that it didn’t think recent “exceptional performance” would be replicated over the rest of 2018.
Nevertheless, I think it’s worth holding on.
Despite the huge rise in the company’s value, its stock still appears cheap, at 10 times forecast earnings, and yields a juicy (and seemingly secure) 6% dividend yield. High returns on capital? Check. Bullet-proof balance sheet? Plus has that too.
On the topic of regulation, the company stated that it was “already aligned” with a lot of what the European Securities and Markets Authority (ESMA) plans to introduce in the next few weeks. The fact that Plus is a geographically diversified business with five licences outside of Europe also means that it’s not wholly dependent on trading in the UK or nearby.
No investment is without risk but I’d always choose Plus over any cryptocurrency. Leave bitcoin to the trigger-happy traders.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.