While the price of Bitcoin has surged higher in 2019, its outlook remains highly uncertain. A lack of fundamentals means it is impossible to accurately value the virtual currency, while lingering concerns regarding its infrastructure and regulations could mean that it fails to live up to heady investor expectations.
Although the FTSE 100 may also face a period of volatility, it appears to offer good value for money. Furthermore, its track record of recovery and growth could mean that it is a superior place to invest your hard-earned cash when compared to Bitcoin.
Although Bitcoin has risen significantly over recent years, it has also shown how volatile it can be. Notably, its price collapse in 2018 highlighted how quickly and severely its price level can change when investor sentiment deteriorates. Having reached $20,000 by the end of 2017, it dropped by over 80% within a 15-month time period.
This highlights the major challenge facing investors in Bitcoin. Namely, its lack of fundamentals mean that it is not possible to place an accurate value on it. In practice, this means that investors may be purchasing the asset for significantly more (or substantially less) than it is worth. This entails a high degree of risk – especially since the potential for Bitcoin to replace traditional currencies seems to be limited.
Regulatory concerns, as well as a lack of infrastructure, could hold back the performance of the virtual currency. This may manifest itself in a high degree of volatility, as well as the potential for a price decline that outpaces the falls of mainstream assets such as the FTSE 100.
By contrast, the investment appeal of the FTSE 100 is high at the present time. A number of its members trade on low valuations that suggest they offer favourable risk/reward opportunities for the long run.
Certainly, the world economy’s challenging outlook could weigh on the FTSE 100’s price level over the coming months. But its track record suggests that buying large-cap shares while they trade on low valuations delivers consistently high returns over the long run. This should provide investors with a degree of confidence in the index, and may enable them to be bold while other investors are fearful. This, in turn, may allow them to be opportunistic when it comes to buying undervalued shares.
Clearly, improving technology and an increasingly digital world means that a virtual currency may one day become the norm. However, with a variety of cryptocurrencies in existence, and more planned to be released in future, Bitcoin’s appeal seems to be relatively low when compared to FTSE 100 shares.
The index may not offer the same level of excitement or interest for many investors as cryptocurrencies. But, in terms of generating a sustainable high return on capital invested, it appears to be significantly more attractive than virtual currencies such as Bitcoin.
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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.