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Is it too late to embrace Bitcoin?

Bitcoin has fallen back. Is it time to buy? Here, I offer an assessment of Bitcoin’s prospects based on technical analysis and a pitch for a way of investing I believe could propel you to millionaire status in a surer way than Bitcoin and the other cryptocurrencies.

Fundamentally challenged

If you are investing in Bitcoin, I reckon you are trading investor and speculator sentiment more than anything else. Indeed, unlike shares and share-backed investments, cryptocurrencies suffer from scant and tenuous fundamentals.

So, you haven’t got many things to go on. For what it’s worth – which isn’t much, I admit – here’s my view of Bitcoin today, based on technical analysis (TA).  At least with TA, we can get something of a picture about where sentiment has driven the market.

The price of Bitcoin has been in retreat since the beginning of June. But that June top fell well short of the absolute high achieved in December 2017. So, I’m watching keenly to see where it bottoms next.

If the current fall in the price is arrested around the level of the January 2019 bottom, or before then, we could go on to see the formation of a great big tapering triangle on the chart. If that happens, the price of Bitcoin will be consolidating.

And consolidation tends to indicate indecision in the market as bullish and bearish speculators fight it out. But consolidation in itself brings no comfort. The price is as likely to break lower as it is higher when the consolidation period has finally run its course.

The route to a steadier fortune

But in all honesty, anything could happen with Bitcoin and I reckon buying the cryptocurrency now is a gamble. Instead, I reckon there are steadier fortunes to be made by investing in shares and share-backed investments in the stock market.

The great thing about shares is they’re backed by underlying businesses. And that means the value can build up while you are holding the shares as the underlying enterprises increase their earnings and assets. As shareholders, we benefit from rising values through a stream of rising dividends and because share prices rise to accommodate increasing underlying value.

As far as I can see, cryptocurrencies don’t have that underlying engine for value-creation. So, straight away, shares have a potential tailwind that Bitcoin lacks. But to fully capitalise, I reckon we need to avoid racy shares backed by companies with an enticing story and little in the way of profits.

Such firms often look as if we can get rich quick with them, but perhaps, counterintuitively, solid companies with steady, growing earnings often perform better for investors, especially when we reinvest our dividends and gains to compound the overall performance of a share portfolio. For me, the way to ride the high road to riches is on quality shares and not by following Bitcoin and its cryptocurrency peers.

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Kevin Godbold has no position in any 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.