Since the beginning of 2019, the Bitcoin price has staged an impressive rally. The price of the crypto asset has more than doubled in value this year, rising from a value of $3,691 per coin at the end of December 2018 to a current price of around $9,500. At one point in June, each coin was worth nearly $13,000.
Renewed interest
This price recovery has emboldened cryptocurrency speculators. Because Bitcoin has no underlying fundamental value, its value is determined by supply and demand. Therefore, if more users begin to conduct transactions with it, then demand will increase, pushing up the price.
A higher level of transactions suggests that more people are using Bitcoin as a currency, and it is becoming more mainstream. It certainly looks as if more people are starting to use the coin to transact. The number of confirmed transactions per day hit a high of 440,000 at the beginning of May. Although the number of daily deals has since declined to below 400,000, the figure is still substantially above where it was this time last year.
In June 2018, the number of confirmed Bitcoin transactions per day averaged around 200,000.
Still, even though the figures suggest that Bitcoin is becoming more popular, calculating how much each coin is worth, or could be worth if the number of transactions continues to increase, is extremely difficult. In reality, Bitcoin is only worth as much as the next buyer is willing to pay.
With this being the case, if you want to make a million, then I highly recommend putting your money to work in the stock market rather than buying Bitcoin.
Underlying value
The primary difference between Bitcoin and stocks is that each stock has an underlying fundamental value. If you own a share in a business, you are technically one of the company’s owners, which means you are entitled to a percentage of the company’s income, assets and a say in how management runs the business.
By comparison, when you own a Bitcoin, that’s all you own, it is just one digital token. As we have seen over the past few years, it is easy for criminals to steal this digital asset if they so wish. Hundreds of millions of dollars of cryptocurrency have been taken over the past few years, leaving owners with nothing to show for their investment apart from a smaller bank balance.
Another factor to consider is that while the value of Bitcoin is determined by supply and demand, the value of stocks is determined by the growth of the underlying businesses. For example, as the global economy has grown over the past decade, the FTSE 100 has produced an average annual return for shareholders of around 10%, including dividends. All you need to do to achieve this return is to buy a simple FTSE 100 tracker, sit back and relax. You don’t need to worry about theft or if people will eventually want to buy the asset from you.
A 10% per annum return might not seem like much compared to cryptocurrency’s 157% year-to-date return, but over three-and-a-half decades, it’s enough to turn a £50,000 investment into £1.4m. That’s why I’m avoiding Bitcoin and using the FTSE 100 to help me make a million instead.