This time last year, when the Bitcoin price was surging, many investors and speculators rushed to buy the cryptocurrency, thinking that it had the potential to make them a million in a very short period.
Unfortunately, 12 months on and the situation has changed significantly. Rather than making investors rich, the price of Bitcoin has collapsed over that period, and its future is now more uncertain than ever.
That said, many supporters of the cryptocurrency continue to believe it could one day become a widely accepted currency. This isn’t as outrageous as it first sounds because, while the price of Bitcoin might have collapsed over the past 12 months, there are still thousands of people all over the world that use it to transact.
What’s more, companies and venture capital investors around the globe are still ploughing hundreds of millions of dollars into developing cryptocurrency and crypto assets technologies.
With so much money going into developing the crypto landscape, I’m not willing to write off cryptocurrencies just yet. However, I’m sceptical that the Bitcoin price will ever return to its previous highs.
The biggest problem with trying to place a value on Bitcoin is the fact that it has no underlying fundamental value. The cryptocurrency is only worth as much as someone else is willing to pay for it. Therefore, I don’t want to try to guess how much it could be worth 12 weeks, 12 months, or even 12 years from now — there are just too many variables to consider.
So if you want to make a million from investing, rather than betting on the Bitcoin price, I think a much better strategy is to invest your money in stocks or bonds.
The most significant difference between investing in stocks and bonds and buying Bitcoin is the fact that we will always be able to place a value on stocks and bonds because they have underlying fundamental value. In my opinion, this makes them a much safer and more reliable way to grow your wealth over the long term.
Using a simple, low-cost index tracker fund or bond fund, you can achieve an annual return on your money of anywhere between 1% to 10% depending on how much risk you want to take. An annual yield of 10% might seem disappointing compared to the explosive capital gains the Bitcoin price has generated for some investors over the past few years, but the good thing about this return is that your money is protected.
Hack attacks, fraud and bankruptcies have cost thousands of Bitcoin investors tens of millions of dollars so far. The chances of the same happening if you invest your money in a low-cost index fund are virtually zero.
The way to a million
According to my calculations, if you can save £1,000 a month and invest these funds at a rate of 10% per annum, it will only take 23 years to make £1m. This approach might not look as sexy as buying Bitcoin, or any of its cryptocurrency peers, but I believe it’s a much safer way to invest your money.
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Rupert Hargreaves owns no share 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.