While the Bitcoin decline hasn’t continued into 2019, the virtual currency is still down by around 80% since reaching a record high in December 2017. It remains relatively popular among private investors, in terms of interest in the cryptocurrency being high. And, according to some investors, its fall represents an opportunity to buy into what could be a long-term growth asset at a lower price.
Buying Bitcoin, though, appears to be a gamble rather than an investment. There’s no way of knowing how much the virtual currency is worth, while predicting its long-term potential is extremely challenging. As such, it may be a prudent idea to instead focus on the investment potential that shares could offer, having a solid track record of high returns over an extended time period.
Risks
Perhaps the most challenging aspect of buying Bitcoin is determining a target price. In other words, deciding at what point it should be sold – assuming it makes a profit after being bought. Its lack of fundamentals and limited real-world usage potential due to a lack of infrastructure means it could be a bargain at the present time, or it could be hugely overvalued. Investors have no way of knowing whether it’s the former or the latter, which makes for a very risky asset.
Furthermore, it seems likely that regulation of the cryptocurrency will increase over the coming years. Private investors have been buying and selling the asset in recent years and, unlike buying shares, there’s little protection provided for them. This situation seems to be unlikely to last in the long run, with various policymakers having stated they’re not in favour of the virtual currency becoming increasingly popular and widespread among private investors.
Track record
In contrast, investing in shares could prove to be a sound move. Certainly, there’s the potential to experience significant losses. A company could report disappointing results or a weak outlook, or the global economy may lead to declining investor sentiment. However, with shares it’s possible to diversify away company-specific risk in order to improve the risk/reward ratio. Bitcoin, however, could lead to concentration risk in some portfolios.
Likewise, the track records of shares and the availability of financial reports means investors can determine at what price it’s favourable to buy and sell. The fact that the FTSE 100 and FTSE 250 have always recovered from downturns and bear markets also means in the long run, share prices are likely to lead to profits for investors if they have sufficient patience.
Takeaway
While Bitcoin may remain in the news and continue to be popular among some investors, it seems to lack investment appeal. A better idea could be to buy shares in a variety of high-quality stocks at fair prices, with this method having produced impressive returns in the long term for a variety of investors.