The surging price of Bitcoin in 2019 suggests that investors have become more bullish about its prospects. After all, its price is determined by investor sentiment rather than fundamentals.
But this can make it difficult to ascertain whether a specific point in time represents an opportune moment to buy the virtual currency. Furthermore, with it lacking income appeal and being open to regulatory risks, its future growth rate may prove to be somewhat disappointing.
As such, now could be a good time following its recent rise to sell Bitcoin and invest in FTSE 100 shares. When undertaken through a Stocks and Shares ISA, this could lead to high net returns.
Fundamental flaws
Perhaps the greatest deficiency of Bitcoin is its lack of fundamentals. In other words, there is no data to support its price level as there is with other assets such as shares. A company, for example, produces annual financial statements that are then used by investors to determine the price at which it trades.
Certainly, all assets include a degree of investor sentiment in their price. But with Bitcoin, sentiment has a huge impact on its price level. Therefore, investors are buying it without knowing what it could be worth.
This could prove to be a far riskier strategy than buying undervalued shares while they offer impressive growth prospects at the present time, for example. Although the world economy faces a period of uncertainty over the next few years, the valuations of FTSE 100 stocks show that investors may have factored this in.
A lack of income
Many investors may not be too concerned about Bitcoin’s lack of income. They may be more interested in capital growth, rather than the level of income that an asset produces each year. However, when investing over a long period, the reinvestment of income received can lead to surprisingly high returns.
Since the FTSE 100 currently has a dividend yield of around 4.5%, it appears to offer significant appeal for income-seeking investors. Its track record shows that the reinvestment of dividends usually contributes a large proportion of its total returns. As such, its high yield could indicate that it offers investment appeal on a relative basis.
Regulatory risks
Changes to Bitcoin’s regulations could have a detrimental impact on its performance. There have already been various negative comments made by lawmakers and policymakers in recent years. As such, there is a considerable risk that investors may not be fully factoring in the risks that are ahead for the cryptocurrency.
By contrast, the outlook for Stocks and Shares ISAs continues to be relatively sound. The annual allowance is generous enough for most investors, while its tax efficiency could lead to high returns over the coming years. As such, now could be the right time to buy a range of large-cap shares through an ISA for the long term.