Here at the Motley Fool, we often discuss whether or not owning Bitcoin is likely to make you a millionaire. There are many different opinions on this matter – I have argued that the ship has likely sailed, but I know some people who believe otherwise.
However, there is another Bitcoin talking point that we don’t raise as often – the question of whether the cryptocurrency is a ‘safe haven’ asset.
A safe haven asset appreciates in value when other assets are declining in value. The classic safe haven is gold – traditionally, investors have chosen to own the precious metal as a hedge against both inflation (the decline of the value of paper currency) and against falling stock prices (gold typically increases in value during periods of uncertainty).
Why do some people argue that Bitcoin is a safe haven? In a nutshell, the argument is that since the cryptocurrency architecture sits outside of the reach of central banks, and the mathematics of the blockchain are not affected by economic uncertainty or political unrest, it should be considered a safe haven.
I think this speaks to a fundamental misunderstanding of reality. For one thing, it is demonstrably untrue that the value of Bitcoin is stable (and stability is a hallmark of a safe haven) – indeed, crypto fans themselves often claim that it has the potential for massive price changes. For another, it ignores the fact that Bitcoin is a purely speculative asset – it produces nothing, and its only value comes from what the next fellow is willing to pay for it.
Royal Dutch Shell
For these reasons, I believe that a well-diversified portfolio of stocks, purchased at low valuations, is, on balance, a safer way to compound your wealth than an asset as unstable as Bitcoin. Specifically, I think that that shares of Royal Dutch Shell (LSE: RDSB) currently present an attractive proposition for investors looking to add income stocks to their portfolios. Shares of Shell currently yield a healthy 6.43%, which is much more than the 4.4% average for the FTSE 100 as a whole.
Furthermore, Shell is a company that hasn’t cut its dividend since 1945 (although it did pay it in stock instead of cash during the latest oil price crash). As my colleague Michael Taylor wrote, no management team wants to be the first to let down shareholders, providing an additional reason to be bullish on Shell’s ability to pay out dividends.
This isn’t to say that Shell is a risk-free company. Constantly changing oil prices, pressure from environmental groups, and the challenge of moving towards sustainable energy all present real difficulties for the business. But Shell has a demonstrated track record of weathering even the worst oil crises, and is well-positioned to lead the way when it comes to renewables.
For these reasons I think that income investors would be much better served by putting their savings into Shell than Bitcoin.
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Stepan Lavrouk owns no stocks 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.