Although 2019 is only a few weeks old, the FTSE 100 has recorded a rise of 1.5%. If it is able to continue this trend throughout the year, it could mean that its total return is in excess of 25% for the year. Clearly, there is a long way to go in 2019, and various risks could knock the index’s performance off course. But recent gains show that its valuation may now be viewed as appealing in the eyes of many investors.
In contrast, the price of Bitcoin has fallen by 4% since the start of the year. If repeated through the course of the year, this could mean that a decline of 60% in 2019 is on the cards for the virtual currency. And with there being no way of knowing if the current price level offers good value for money, recent trends could continue over the coming months.
Investment appeal
In previous years, Bitcoin has often been viewed as a means of improving the diversity of a portfolio. In this sense, it has been compared to gold, with it offering less positive correlation to the wider economy than other assets. The reality, though, is somewhat different. Bitcoin’s price has fallen to a far greater extent than the FTSE 100 and other global indices in the last year, with investors becoming increasingly risk-averse during that time. Due to the lack of fundamentals and the potential risks of the cryptocurrency, it could be argued that it is an asset which requires a bullish mood among investors in order to generate high returns.
As such, 2019 could be a difficult year for Bitcoin. There are numerous risks facing the world economy, such as a slowing Chinese economy and Brexit. They could cause investors to adopt an increasingly risk-off attitude towards their portfolios. Bitcoin could therefore continue to be unpopular when compared to stocks, with the latter offering financial information which provides guidance on whether a value opportunity is on offer.
Growth prospects
Even if the risks facing the world economy fail to materialise and investors become increasingly positive, the stock market appears to offer a more attractive risk/reward ratio over the long run. History shows that the FTSE 100 has always recovered from even the most challenging financial crises, and that buying and holding it for the long term is likely to lead to high total returns.
In contrast, history is filled with examples of assets which have lacked strong fundamentals, and yet have gone on to exceptionally high price levels. For instance, the dotcom bubble is a recent example, where companies were valued based on potential sales, rather than their track records. Bitcoin could prove to be a similar story, with investors now appearing to have ‘wised up’ to its limited real-world usage potential, as well as its lack of defensive appeal during challenging periods for the wider economy.