Investing in Bitcoin continues to appeal to a large number of individuals. That’s despite its price having fallen significantly in recent months, with it showing little sign of a sustained turnaround since plummeting from nearly $20,000 in the latter part of 2017.
Furthermore, the virtual currency does not have any data available which can be used to assess its valuation and, therefore, its long-term appeal. Certainly, the prospect of a virtual currency replacing traditional currencies is an exciting idea, but Bitcoin’s investment potential appears to be limited compared to another tried-and-tested method.
Uncertainty
As mentioned, Bitcoin’s future appears to be difficult to determine. Unlike many other assets, it lacks fundamental data which can be used to assess its value and investment appeal. For example, investing in other assets such as property, shares and bonds carries a significant amount of data which can be used to accurately assess the risk/reward ratio which is on offer at a particular point in time.
In contrast, Bitcoin is merely dependent upon supply and demand among investors to determine its price. As such, it faces an uncertain future, with it being unclear as to whether it offers good value for money at the present time.
Track record
In contrast, a tried-and-tested method of generating high returns is buying shares through a tax-efficient product, such as a SIPP. In terms of its tax avoidance appeal, a SIPP allows all contributions to be made gross of tax, which could inflate the value of a portfolio over the long run. Furthermore, 25% of all withdrawals, which can be made after age 55, are tax-free. This means that even if investors generate modest returns from their SIPP investments, they will still benefit from paying less tax than they otherwise would have done during their working lives.
Investing in shares through a SIPP could provide a high return, with the stock market having a tried-and-tested track record of high returns. Mid-cap shares such as those found in the FTSE 250 have a track record of delivering high single-digit annualised returns over a long timescale. And with commission costs now being relatively low, it is not costly to buy a wide range of shares within a SIPP. This could provide a superior risk/reward opportunity than a number of other assets, including Bitcoin.
Future potential
Of course, the blockchain technology on which Bitcoin is built appears to have significant future usage potential. And it could be the case that a virtual currency eventually replaces traditional currencies. However, for investors who are seeking to generate a sizeable nest egg for retirement, as well as enjoying financial freedom in older age, investing in the stock market through a SIPP seems to be a better idea. Its track record, tax avoidance potential and the ability to reduce company-specific risk through diversification could lead to impressive performance in the long run.