2020 has been a mixed year for UK shares but at an incredible one for Bitcoin. The UK All Companies sector has fallen by 7.9% since the start of this turbulent year, while Bitcoin has been going gangbusters.
The cryptocurrency ended last year trading at $7,177 but has more than tripled since then. At the time of writing, it trades at an incredible $23,167. Yet I wouldn’t buy Bitcoin at today’s dizzying level. Instead, I’m backing UK shares. Here’s why.
Bitcoin is a phenomenon. Anybody who got in early could be mega-rich by now. This year, it’s defied its many doubters to surge past the December 2017 peak of $20,000. Few will have expected that when it dwindled to just a few thousand dollars a couple of years ago. Many thought its ultimate value would be zero. Not now.
I’m buying UK shares for income and growth
Bitcoin is also becoming increasingly respectable. Institutional investors want a piece of the action. Payment companies like PayPal are to starting to consider accepting it as exchange. If this trend continues, Bitcoin could climb much higher. Especially since its supply is limited to a maximum of 21m coins, of which up to 5m could be lost for good. Rising demand and shrinking supply suggests further growth. So why do I favour UK shares?
Bitcoin is highly volatile. That’s both a strength and a weakness. A strength because it attracts traders looking to make a fast buck, a weakness because the unwary risk of making swift losses. When faced with such volatility, it’s never wise to buy at the peak. Once the Christmas rush is over, I can see it tumbling in January.
By contrast, I think the long-term outlook for UK shares is positive. The FTSE 100 and FTSE 250 have underperformed global indices since the Brexit referendum shock in June 2016, and are due a bout of catch-up.
Bitcoin is too pricey for me right now
Brexit continues to cast a shadow today. We leave the EU in just two weeks and still don’t know whether prime minister Boris Johnson will have struck a deal by then. If he does, UK shares are likely to enjoy a relief rally, but not a huge one as investors realise this will be a very basic deal.
If Boris doesn’t get a deal, shares will fall. But the drop may be less than many expect. Markets have already priced a lot of the downside in. After the initial shock, they might even welcome the certainty.
While it’s always good to take advantage of any short-term buying opportunity, investors’ focus should be on the long term, investing for at least 10 or 20 years, and ideally longer. Over such a lengthy period, even Brexit and Covid-19 will fade in the memory. At least, I hope they will. UK shares should continue to deliver a winning combination of dividend income and capital growth.
Bitcoin is expensive right now. UK shares are relatively cheap and that’s where my money is going.
Harvey Jones 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.