The Bitcoin price has surged this week. The move took the value of the cryptocurrency above $20,000 for the first time.
Booming investor sentiment has continued to drive the value of the asset higher. Indeed, at the time of writing, Bitcoin is changing hands for around $23,000.
Many analysts are saying that this could be just the start of a much bigger move higher for the cryptocurrency. One Wall Street analyst has put out an incredibly optimistic forecast of $400,000.
Only time will tell if these projections prove to be right. The decision on whether or not to buy the Bitcoin price depends on an investor’s personal understanding of the asset.
Analysing the Bitcoin price
I find it difficult to place a value on a Bitcoin because the asset doesn’t produce any cash flow. That means it’s only worth as much as other investors are willing to pay, which is $23,000 today. Some people think it’s worth paying that amount to buy the cryptocurrency. And these investors might end up pocketing large profits.
But I’d rather invest my money in UK shares, which I know and understand well.
For example, I own shares in Unilever, which produces products such as OXO stock cubes and Marmite spread. These are tangible products stocked in virtually every supermarket around the country.
The production and sale of these products yield profits for the company, which can then be returned to shareholders. On the other hand, I find it difficult to understand how the Bitcoin price can produce returns from my portfolio.
Another example is GlaxoSmithKline. This is one of the world’s largest producers of vaccines and other pharmaceutical treatments. It’s also a world leader in treatments for HIV. Unfortunately, diseases and viruses are a fact of life, and that means Glaxo is always likely to have a market for its products.
The production and sale of these treatments generate profits, which can then be returned to investors, or reinvested back into the development of new drugs. The stock currently supports a dividend yield of 5%, which is funded by profits produced from operations. The Bitcoin price doesn’t offer investors a dividend yield.
The better buy
As such, I’d rather own shares in these companies, which have a strong track record of producing income and capital growth investors over Bitcoin. While these investments may generate lower returns in the short term, I believe that’s a worthwhile trade-off.
Investing is a marathon and not a sprint. I don’t think it’s worth gambling on something I don’t understand in the hopes of being able to make a quick buck.
However, I’m not saying Bitcoin is entirely unsuitable as an investment. For those who understand the cryptocurrency and its market, it might be a good investment in the long run as part of a diversified portfolio.
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Rupert Hargreaves owns shares in Unilever. The Motley Fool UK has recommended GlaxoSmithKline and Unilever. 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.