It’s been a wild couple of months for the Bitcoin price. It culminated in the digital currency charging to record highs just shy of $42,000 on Friday. Price action at the start of the week has been much less encouraging for Bitcoin investors though.
The threat of a bursting bubble is always there when an asset class rockets over a short timespan. And Bitcoin, which has doubled in value in just over three weeks, has yet again collapsed from record levels like it did in 2017. It’s now dealing 14% lower from the end of last week at around $33,100.
The FCA wades into Bitcoin
I’ve remained happy to sit on the sidelines rather than take a gamble with Bitcoin. The fear of a price collapse soon after I theoretically bought in is one fear I have. Concerns over the legitimacy of cryptocurrencies as bona-fide assets is another.
Incidentally, a Financial Conduct Authority (FCA) paper released today lays out the colossal risks of buying Bitcoin. In rather stark terms the regulator states that “if consumers invest in these types of product, they should be prepared to lose all their money.”
In particular, the FCA lays out five concerns over Bitcoin investment relating to:
- Consumer protection, as some cryptocurrency investments might not be subject to regulation beyond anti-money laundering rules.
- Price volatility which places investors “at a high risk of losses.” The risk is worsened by “the inherent difficulties of valuing cryptoassets reliably,” the body says.
- Product complexity, as product complexity can make it difficult for consumers to understand the risks.
- Charges and fees, which may be higher for Bitcoin investments than for regulated products.
- Marketing materials which may “overstate the returns of products or understate the risks involved.”
I’m happier investing in UK shares!
That’s quite a list for investors to get their heads around. And it’s one which underlines why buying UK shares is a better way for Britons to invest their hard-earned cash. I, for one, never came across severe FCA warnings like these when choosing which Stocks and Shares ISA to invest in!
The 2020 stock market crash shows again that UK shares aren’t immune to periods of intense volatility. However, significant selling pressure like we saw last year happen because of significant economic events which threaten to shave a great deal off corporate earnings. There’s a clear reason why UK shares drop so significantly. Bitcoin, as we’ve just seen, can crash at the drop of a hat.
Besides, history shows us time and again that UK share prices always come roaring back after stock market crashes. This is because corporate profits inevitably rebound as the economic cycle recovers.
By comparison, there’s no guarantee that Bitcoin prices will ever recover to their recent highs because the cryptocurrency has no inherent value. Simply put, it remains just an idea. There’s no tangible reason why investors will be attracted back in en masse.
UK shares give you and I a slice of something, i.e. a portion of those corporate earnings. And long-term investors like me tend to make a tasty average yearly return of 8-10%. So why take a chance with something as dangerous as Bitcoin?
Royston Wild 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.