Given the choice, would you buy UK shares or Bitcoin today? If you based your decision purely on recent performance, you’d plump for the cryptocurrency. It’s up 158% year-to-date to $18,625 at time of writing, while the FTSE 100 is down around 15%.
Personally, I wouldn’t touch Bitcoin at today’s price. For me, UK shares make a much better long-term investment. I would rather buy them today when they are cheap, than Bitcoin while it is expensive.
Investing is a personal decision. Which asset classes you buy rests on factors such as age, goals and timescale. It also depends on whether you are investing or gambling. Personally, I think buying Bitcoin is a gamble. Buying shares, by contrast, is investing. Here’s the difference.
I’m not buying Bitcoin at this price
When buying equities, you are investing in real-world businesses that produce goods and services that people buy and (in most cases) need. Oil and gas companies, supermarkets, housebuilders, utilities, tech, telecoms, banks and mining companies all have a key function. Better still, you can calculate value of these shares, based on factors such as revenues, profits, cash flow, book value, and so on.
In contrast to UK shares, you can’t value Bitcoin. It doesn’t have a real-world function that you cannot get elsewhere. Some might call it a store of value, but we already have gold for that.
Another advantage of shares is that as well as capital growth, you get dividend income, too. Over the longer run, this may deliver the majority of your returns. By contrast, cryptocurrencies do not pay any income income at all.
Basically, when you buy Bitcoin, you are betting on future price movements. The problem is, those are impossible to predict. Of course the same applies to shares. I couldn’t tell you where BP’s stock will stand next year. However, I could look at factors, such as the pace of the post-Covid economic recovery, the oil price outlook, and financials such as revenues, cash flow and costs, to produce an informed idea of what it might do and whether it’s worth buying.
Here’s why I’d buy UK shares
Bitcoin is impossible to analyse in this way. Most people don’t even know why it went up or down after it has moved. Even hindsight is no use here. Having said that, I’ll stick my neck out and say Bitcoin will hit $20,000 this year, surpassing December 2017’s all-time high. Why? The Bitcoin price is driven primarily by sentiment, and that is bullish right now. Note how it dropped last week, then quickly recovered. After that who knows? Who cares? This is no way to build long-term wealth. UK shares are.
More than 80% of my portfolio is in equities. Yes, stock markets can be volatile, too, but history shows that over the longer run, they beat almost every other asset class. So good luck to Bitcoin traders/gamblers. But I’m not trusting to luck, I’m building my retirement on shares.