The Motley Fool

As Bitcoin soars to a 2020 high during FTSE 100 weakness, here’s what I’d do now

Image source: Getty Images

This time last year, I’d written off Bitcoin. It was falling back from a second bull run that hadn’t come anywhere near its historic highs. It was all over, bar a few more twitches on the way down, wasn’t it? No. The FTSE 100 would surely do better in the years ahead.

Well, maybe not in the (singular) year ahead. When the Covid-19 pandemic hit, the price of Bitcoin crashed below $5,000 at one point, way down from its all-time high of $19,783 in late 2017. Bitcoin bulls who were still predicting the thing would soon smash through $20,000 and on to $100,000 and beyond were wrong. Surely. Weren’t they?

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Well, a remarkable reversal has happened. As I write, the Bitcoin price has soared to $17,908, less than $2,000 short of a new record. So, will I abandon shares and go for Bitcoin instead? No. And I’ll explain why.

When I invest in an asset, I want there to be something fundamental behind it. Kicking a car’s tyres before you buy it probably doesn’t help, but it can make you feel better. In a similar way, knowing I could go round to a Lloyds branch and kick it to check its bricks are solid helps remind me I own a share of something tangible. I know Lloyds might not be the best example to use, with its share price down 40% in 2020. But I’m sure you know what I mean.

Hands-on products

Similarly with something like Tesco. I go shopping there. I touch and buy the stuff it sells. And I eat the food. I know it’s something real, providing essential goods of a kind that will never go out of fashion. And if I buy shares in a housebuilder, well, they provide perhaps the ultimate in safe tangible products. You can’t say that about Bitcoin.

I invest mainly for dividends. And, to be confident in them over the long term, I want to know how the profit that pays them is generated. I need to understand the business I’m buying a part of, at least to some level. Without that, if I didn’t know where next year’s dividend cash was going to come from, I really wouldn’t want to invest.

And that shows the key weakness of Bitcoin — it has nothing tangible underpinning it. And so no rational reason why it should continue on up. Sure, it might go further but, ultimately, I’m still convinced I’d lose money if I tried buying it for the long term.

Bitcoin volatility

Some gamblers (I just can’t call them investors) are excited by big short-term Bitcoin spikes. But that volatility is surely partly down to low liquidity. There’s apparently a total of $300bn in Bitcoins circulating, which sounds a lot. But that’s a tiny fraction of the value of the world’s stock markets. It only takes a relatively small number of investors to shift it.

What makes all the Bitcoins worth $300bn anyway? Only the price itself. And shares are worth more than just their price. They’re worth the value of their future streams of profits, and that’s something tangible. So no. Wherever Bitcoin might go in the short term, I’m sticking with FTSE 100 shares for long-term gains.

5 steps to prepare for the next market correction…

It’s ugly out there…

The threat posed by the coronavirus outbreak have spooked global markets in 2020, sending stock prices into a nosedive.

We’ve now entered our second national lockdown, and investors are worried that another stock market crash could be around the corner.

Against such a backdrop of market worry, it’s little wonder that many investors feel panicked. (After all, nobody likes to see the value of their portfolio fall significantly in such a short space of time.)

Fortunately, The Motley Fool is here to help, and you don’t have to face this alone…

Download a FREE copy of our Bear Market Survival Guide today and discover the five steps you can take right now to try and bolster your portfolio… including how you can even aim to turn today’s market uncertainty to your advantage.

Click here to claim your free copy of this Motley Fool report now.

Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group and Tesco. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.