Bitcoin has enjoyed a resurgence in 2019. After a highly challenging 2018, which at times saw it lose over 80% of its value versus its 2017 high, it has benefitted from relatively strong investor sentiment in 2019.
As a result, many investors may now be considering whether the virtual currency could provide them with continued high returns in the long run.
While improving returns cannot be ruled out, Bitcoin is still a high-risk investment that lacks fundamentals. So at a time when the FTSE 250 appears to offer growth and income potential, it could be a better place to invest than the cryptocurrency.
While Bitcoin has the potential to move higher, its risks appear to be big. Unlike other assets such as shares, bonds and property, the virtual currency lacks fundamentals. This makes it impossible for investors to determine whether or not it is fairly priced at the present time. This means that it carries a considerable amount of risk.
Looking ahead, the potential for Bitcoin to replace traditional currencies seems to be relatively low. It has a limited size, while regulatory risks remain high. As such, while virtual currencies may eventually become more of ‘the norm’ for consumers across the globe, Bitcoin itself may not be adopted on the scale some investors are anticipating. This may mean that the optimism that has been present throughout 2019 ultimately fades away over the coming years.
Although shares are also a high-risk investment, their fundamentals and the potential to diversify means that they could offer a superior risk/reward ratio when compared to Bitcoin.
Shares are based on real companies doing real business. For example, an investor can analyse a company’s financial statements, check out their growth strategy and consider their position in the wider industry in which they operate before buying them. Furthermore, an investor can determine whether a stock offers good value for money compared to historical ranges, as well as versus comparable stocks that operate in the same industry.
By undertaking research and relying on fundamentals, an investor may be able to reduce risk and improve their chances of generating high returns. Likewise, buying a range of stocks that operate in different industries and geographies can reduce company-specific risk, while providing an investor with access to more favourable growth opportunities.
By contrast, it is not possible to reduce the risk of investing in Bitcoin without utilising other assets within a portfolio. As such, the risk of loss to an investor could prove to be higher, while the volatility that is inherent in the virtual currency’s price may lead to a more challenging experience for a holder of Bitcoin.
As such, with the FTSE 250 having a yield of over 3% and offering impressive long-term growth potential, it could prove to be a better investment opportunity than Bitcoin. Its track record suggests that buying a diverse range of shares leads to relatively high total returns in the long run, while Bitcoin’s uncertain future means that it could be worth avoiding.
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Peter Stephens 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.