Even if you only keep one eye on the markets, you probably haven’t failed to notice the rise in the value of Bitcoin since the beginning of 2019. By last Wednesday, its price had increased a little over 250% since January to a peak of nearly $14,000. Yes, Bitcoin’s back, even though no one can quite agree why.
The most recent explanation put forward is the unveiling of Libra — Facebook’s new currency — and has only served to reinforce traders’ beliefs the former is in no danger of losing its crypto crown.
But this time it’s different, right?
No doubt some Bitcoin believers think ‘it’s different this time‘ and we should forget what happened 18 months ago. Experienced market participants will likely be more skeptical.
Nevertheless, Bitcoin might well continue rising in value for the simple reason that its ‘investment case’ isn’t hard to comprehend (and hasn’t improved). Namely, buy into something in the hope that someone else will eventually pay a higher price for it.
Now, call me old-fashioned, but something governments and banks have hitherto shunned, appears to be easily stolen by hackers, and has no intrinsic value, doesn’t sound like a good investment to me.
I’ve no doubt some existing holders would take issue with the above. One thing that can’t be so easily dismissed by Bitcoin believers, however, is just how volatile its price is.
Having reached the aforementioned $14,000 mark on Wednesday, it then plummeted 25% in value in one day.
As I type, one coin currently fetches around $11,800. That’s the sort of price behaviour you might expect from a high-risk, thinly-traded mining stock.
To me, this sends a clear message that you should only ever bet on Bitcoin what you can afford to lose, while also acknowledging that you’re merely speculating rather than investing. To do the latter, you need to adopt a very different approach.
A better bet
Those new to investing often assume that to get rich from the market, you need to do something horribly complex, horribly risky, or a toxic mixture of the two. There’s an element of truth to that, but only if you lack patience.
Fact is, equities have been shown to be the best-performing asset of them all over the long term — more so than bonds, property or gold. We can’t know for sure, but the history of market fads suggests stocks and shares will likely outperform Bitcoin too.
Invest £10,000, leave it alone for 30 years and you’ll have a little over £76,000 by 2049 (excluding fees), assuming an average annual return of 7%. This could be achieved with nothing more than a cheap global index tracker, or exchange-traded fund.
Increase the average annual return to 10% — perhaps by focusing on smaller companies through a similar fund — and you’ll have almost £175,000 at the end.
And that’s if you don’t add to your investment at all over three decades. Assuming you do, it’s very realistic (in my view) to think that you might be able to retire with a million-pound portfolio.
If you had thrown £10,000 at the cryptocurrency last Wednesday, you’d now have about £8,400. If it goes back to where it was in December, you’ll have about £3,000. Bitcoin might still go to the moon, but I know what I’d feel more comfortable investing in…
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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.