The Bitcoin price rise over recent months has been significantly stronger than the stock market rally of 2020. For example, while Bitcoin’s price has risen by around 170% since reaching a trough in March, the FTSE 100 is up by around 30%.
However, over the long run, a portfolio of shares could offer a more attractive means of making a million than Bitcoin. Their lower risks, low valuations and track record of growth suggest they offer a more favourable risk/reward ratio.
The prospect of a sustained stock market rally
The 2020 stock market rally is not guaranteed to continue over the coming years. Risks such as Brexit and an uncertain economic environment could derail the progress made since March. However, the track record of indexes such as the FTSE 100 and FTSE 250 suggests a return to the near-8,000 point level achieved by the UK’s main index is very likely over the long term. After all, the stock market has always recovered to post new highs after its various declines in the past.
By contrast, the Bitcoin price faces a more uncertain future versus the potential for a stock market rally. It has a limited track record of performance. Moreover, its price is entirely based on investor sentiment. Unlike shares, there are no fundamentals that can be used to deduce whether it offers good value for money. Therefore, buying it could mean investors are grossly overpaying for an asset that appears to have limited value as a replacement for traditional currencies.
Potential threats of shares versus Bitcoin
As well as offering a high chance of a sustained stock market rally, shares also offer less risk than Bitcoin. In many cases, they currently trade at low prices following the stock market crash. As such, they have wide margins of safety that could mean investors have priced in many of the challenges facing the world economy. And, with it being possible to diversify across a wide range of companies and sectors, the risks of buying stocks for the long term can be reduced significantly.
Bitcoin, meanwhile, continues to face a challenging long-term outlook. Threats such as regulatory risks and the rising popularity of other virtual currencies don’t seem to have negatively impacted on investor sentiment this year. Over time though, they could weigh on sentiment and cause the Bitcoin price to underperform shares in a stock market rally.
Making a million
Even if an investor generates an annual return in line with indexes such as the FTSE 100, they could make a million as a result of a stock market rally. For example, an 8% annual return that’s the same as the FTSE 100’s past returns would turn a £500 monthly investment into a £1m portfolio within 35 years.
As such, now could be the right time to buy a selection of UK shares. Over time, they may offer higher return prospects with less risk than Bitcoin.