The Bitcoin market has, like stock markets, behaved extremely wildly in recent weeks. The virtual currency collapsed to one-year lows around $4,600 in mid-March as the Covid-19 crisis shook investor confidence. But its recovery since has been remarkable, the asset charging back to within a whisker of $10,000 on Friday.
There’s some who believe that Bitcoin could be about to embark on a fresh surge towards the stars too. The ‘halving’ is a process that cuts the number of tokens awarded to currency miners by half. This third instalment, scheduled for this evening, clearly threatens to have a serious supply side-effect for the cryptocurrency.
Sink or swim
Previous price patterns certainly suggest that Bitcoin could accelerate away following this upcoming episode. One crypto expert, Jaan Lainurm, notes that Bitcoin’s came within spitting distance of $20,000 the last time halving occurred in 2016.
But don‘t break out your chequebook just yet. Lainurm, the chief investment officer of venture capital firm Vereeni Investments, isn’t totally convinced that the digital asset will spring higher. He notes that Bitcoin has struggled to gain traction alongside other more established assets due to coronavirus-related uncertainty, commenting that the asset was “at one point losing half of its value in the space of a few hours.”
That said, Lairnum doesn’t rule out the possibility of a renewed appetite for Bitcoin, particularly as “investors will be buoyed to have seen it recover most of those losses over the past few weeks.” He notes that investors “may find Bitcoin’s fixed supply appealing” during a period when central banks across the globe ramp up quantitative easing programmes to support the global economy.
Don’t bother with Bitcoin
The upcoming halving procedure doesn’t impact my personal view of Bitcoin. I’d much rather put my money to work on share markets. Why? Well I don’t consider an asset class that remains as volatile as this to be an attractive investment target. The long-term future of cryptocurrencies remains up in the air and the Securities and Exchange Commission continues to rebut proposals for a Bitcoin-backed Exchange Traded Fund.
I’d much rather continue to use my money to invest in share markets. For one, study after study shows long-term investors can expect to make returns of up to 10% per year. This is even when periods of extreme volatility (like recent coronavirus-related turbulence) are taken into account.
Finally, I believe that the recent sell-off leaves plenty of brilliant bargains that are too good to ignore. Of course, further bouts of selling could be just around the corner. The Covid-19 crisis continues to evolve and the economic implications remain broadly unknown. Remember though, stocks should be bought and sold on their profits outlooks for 10, 20, maybe 30 years ahead. Not on the basis of what their share prices might do in the short- to medium-term. And there are plenty of great buys just on the FTSE 100 alone.