Bitcoin is on the move. Again. Over the last month, the cryptocurrency has climbed a stonking 22% in value. Over the weekend, it breached the $13,000 mark for the first since January 2018.
So, what’s behind this latest price rise?
Bitcoin goes mainstream
The chief reason for Bitcoin’s recent positive momentum looks to be news that online payments system provider PayPal will soon permit its customers to buy and sell the cryptocurrency (along with Ethereum, Litecoin and Bitcoin Cash) using their accounts.
But there’s more. As well as trading Bitcoin, customers will also be allowed to use it to pay for things they buy through PayPal. As you might expect, this development is being rolled out in the US first with other countries set to follow.
PayPal isn’t the first company of its kind to offer clients the ability to buy and sell cryptocurrencies, but it’s arguably the best known. Whether this new feature will be popular with existing customers, however, is hard to say.
But as a PayPal customer myself, I’ll definitely be sticking to my strategy of growing rich through buying quality UK stocks instead.
Why I’d still buy UK shares
There are several reasons.
Unlike Bitcoin, shares give me part-ownership in a business. The valuation of this business is driven by profits growth. Bitcoin’s price, by contrast, is based purely on sentiment. It’s only possible to make money from owning the cryptocurrency if someone is willing to pay more for it.
Unlike Bitcoin, many UK shares pay dividends for as long as people own them. True, some companies have needed to rein-in their cash returns in the wake of the pandemic, but many have now been reinstated. Once the coronavirus storm has passed and the economy pulls itself out of recession, I have no doubt the UK stock market will be a great source of income once again.
Unlike Bitcoin, the London Stock Exchange is also highly regulated and secure. The Financial Services Compensation Scheme (FSCS) also provides cover for investments to the tune of £85,000 per person per firm. Platforms such as Hargreaves Lansdown, AJ Bell and Interactive Investor must abide by specific rules too. These include ringfencing client money from creditors and administrators. Fund managers must do the same. In sharp contrast, there have been many examples of traders’ digital Bitcoin wallets being hacked.
There are no guarantees with cryptocurrencies. Naturally, there are no guarantees in equity investing either. March’s market crash showed that shares can suffer huge falls now and then.
Having said this, the volatility of Bitcoin is on another level. Ask anyone who bought some at the end of 2017. Shortly after, the bubble burst in spectacular fashion. A single coin fell from near $20,000 in value to less than $3,000 by December 2018.
This example makes buying and selling Bitcoin more akin to gambling on penny stocks — something I certainly wouldn’t get involved in. PayPal has said that it will educate its users about how cryptocurrencies work, but I’m sceptical as to how much it will emphasise the downside risk.
Holders of Bitcoin may be having a better 2020 than most investors but I know where I’d put my money if I wanted a safer route to riches. It’s shares every time for me.
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended PayPal Holdings and recommends the following options: long January 2022 $75 calls on PayPal Holdings. 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.