The price of a Bitcoin has been sinking since peaking just above $12,000 in June. But there was a particularly stomach-churning drop of more than 10% just over a week ago when the Chinese authorities launched a salvo of words attacking cryptocurrencies, according to Reuters and other reporters.
Back off Bitcoin, citizens!
At one point, Bitcoin found itself below $7,000 again. So, what did China say? The situation before its recent comments is that although crypto trading hadn’t been banned, the country ordered its banks to stop working with Bitcoin exchanges in 2017. But the Rhetoric ratcheted up a few days ago with the People’s Bank of China warning it will crack down hard on Bitcoin and cryptocurrency trading in the country.
The Shanghai-based central bank also warned people not to muddle up the country’s enthusiasm for blockchain technology with Bitcoin and cryptocurrencies. Indeed, last month, China’s president, Xi Jinping, reportedly said that the country should “seize the opportunity” of blockchain technology. And it seems that many traders in the country took that as an endorsement for cryptocurrency, which it wasn’t. Blockchain is good for other stuff too.
I think this is big news because China has a population north of 1.4bn and by many accounts a culture that embraces gambling. My guess is that participation in cryptocurrency speculation has been rife in China and if that market cools off, we could see further plunges in the price of Bitcoin and other cryptocurrencies in the months ahead.
Steer clear of speculative stocks
So, with £10k to invest, I’d steer clear of Bitcoin right now. Instead, I’d aim to make a million by investing in shares listed on the stock market. And £10k is a great amount to start with if you are new to investing. It’s enough cash with which to make a big difference over an investing lifetime if you can latch on to a strategy that gets the process of compounding really motoring. And it’s a small enough amount that you would be able to recover from its loss if things did not go so well!
But I reckon the number one priority for investing any amount of money is that you focus on minimising losses. And one of the best ways of doing that is to avoid highly speculative investments altogether. Bitcoin is an obvious example of one to avoid, but there are many speculative stocks listed on the markets as well. They tend to have an enticing story that makes you think riches will be around the corner when your shares shoot up. But look closely and such firms rarely have meaningful profits now.
Sadly, in many cases, you’re more likely to lose all your investment when you put it in a speculative share because, instead of multiplying by 10, 20 or 50 times as you would hope, it will often sink by 50%, 95% or go to zero.
I reckon the best strategy for aiming for a million with stocks is to focus on shares with high-quality underlying businesses.
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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.