The strong performance of Bitcoin has been enough to lure some away from investing in conventional FTSE 100 stocks over recent weeks. After all, many anticipate a second major sell-off in equities and are fearful regarding the long-term recovery of the global economy. It seems that the stock market crash has widened the appeal of alternative assets such as cryptocurrencies.
That said, I strongly believe that investors who buy and hold cheap FTSE 100 shares today will have superior prospects of building long-term wealth than those who pile cash into Bitcoin. What’s more, the uncertainty and volatility that characterises cryptocurrencies like Bitcoin mean it’s certainly not an investment for the faint hearted.
The appeal of Bitcoin
It’s easy to see why Bitcoin may appear an attractive alternative for your hard-earned cash at present. The price has surged by around 43% in 2020, while the FTSE 100 is down by 18%.
A quick scour of the Internet reveals numerous forecasts that predict Bitcoin’s price to surge over the next few years. But it’s worth remembering that the cryptocurrency’s valuation is based on sheer speculation, rather than fundamentals. This goes a long way to explain why the digital currency is so volatile.
Additionally, the future of Bitcoin is by no means certain. Various problems arise when considering its long-term prospects. For one, the virtual currency is still not widely accepted even after 11 years in circulation. And moving forward, Bitcoin also faces a degree of regulatory uncertainty that could weaken its ability to replace traditional currencies.
The appeal of the stock market
On the other hand, there’s the possibility of investing your cash in the stock market. With many shares trading below their average historic valuations, I think buying cheap FTSE 100 stocks is a superior way of building wealth over the long term.
Admittedly, the short-term outlook for the stock market leaves a lot to be desired. Share prices could well take another tumble if various world events and economic data filter their way through to financial markets.
However, things look far more attractive with a long-term perspective. In the past, the stock market has never failed to recover and, ultimately, go on to reach new highs. With that in mind, buying cheap FTSE 100 shares and holding them forever could deliver serious returns. In addition, adopting a buy-and-hold strategy means you can ride out any temporary market downswings and allow time for your returns to compound. What’s more, using a Stocks and Shares ISA means you won’t have to pay any tax on your investments. This can have a substantial impact in the long run.
All things considered, buying cheap FTSE 100 shares, as opposed to Bitcoin, could immensely boost your chances of making a million through a combination of share price appreciation and dividend pay-outs.
Matthew Dumigan 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.