Investing in Bitcoin over recent months has generally proven to be a good move. The virtual currency has enjoyed a period of strong growth that has helped to partially offset its disappointing performance in 2018.
However, the cryptocurrency faces a future that is exceptionally difficult to accurately predict. In this sense, buying it could prove to be a gamble.
Although there is an element of risk in buying shares, their track record suggests that doing so is likely to provide a favourable return profile over the long run that could boost your chances of making a million.
A gamble too far?
Attempting to predict where the Bitcoin price will be trading in five or 10 years’ time is almost impossible. Its future performance depends on a variety of factors, including regulatory change, the popularity of other virtual currencies and how investor sentiment changes.
The challenge facing investors is not only that those factors are impossible to predict, but also that it is not possible to determine whether the virtual currency offers a margin of safety. In other words, while other assets provide information of different types that offers guidance on their value versus the current market price, Bitcoin provides scant guidance on what it is worth.
This may mean that buying it is akin to gambling. After all, buying any asset for which there is no means of accurately assessing its value would seem to be a significant risk in the eyes of most people. Certainly, it could deliver further growth over the coming years. But it may experience a more challenging period that leads to losses for its holders.
While investing in the stock market carries a degree of risk, it may prove to be more appealing than buying Bitcoin. It is possible, of course, to reduce portfolio risk through holding a variety of companies. This is in direct contrast to Bitcoin, which is a single asset.
Moreover, with shares it is possible to undertake research on a specific business in order to gauge where the price could be trading in five or 10 years’ time. Certainly, between now and then there could be any number of economic events that cause the price to diverge from any intrinsic value. But, over the long run, share prices could converge on their intrinsic values, which presents an opportunity for investors to buy them at discounts and sell them at premiums to those intrinsic values.
As such, with a number of FTSE 350 stocks appearing to offer good value for money at the present time, now could be an opportune moment to buy a range of mid and large-cap shares. Doing so instead of gambling on Bitcoin may lead to an improved risk/reward ratio, as well as a higher chance of making £1m in the long run.
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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.