Approaching $24,000 a pop, Bitcoin has made some people very rich in 2020. Anyone who bought the cryptocurrency one year ago would be sitting on a gain of over 200%. That’s an incredible rise in such a short period of time. It also puts the performance of even the best UK shares to shame.
Today, however, I’ll explain why I’d always pick the latter as a better option for growing my wealth over the long term.Â
Bitcoin’s been here before
The huge momentum in Bitcoin is eerily reminiscent of what we witnessed almost exactly three years ago. Back in 2017, a single coin rose in value from around $900 at the start of the year to just short of $20,000 by mid-December. Holders were understandably euphoric. “It’s going to the moon!“, they cried. Except it didn’t. Quite the opposite, in fact.
From the beginning of 2018, everything started to unravel. Bitcoin adoption in everyday life was practically non-existent. Accounts were regularly raided by hackers. And with no one left to buy, there was only one direction its value would go.
And, my word, did it fall. Almost exactly one year after its price high, Bitcoin had sunk to just over $3,000. Personally, I can see history repeating itself.
Of course, Bitcoin bulls would point to the fact that it’s ‘different’ this time. The 2017 bubble was the product of unsophisticated traders not knowing what they were doing, they’d argue. The 2020 rise, coupled with Paypal’s decision to allow those account holders to purchase cryptocurrency, is proof Bitcoin is now mainstream. What’s more, the cryptocurrency could replace gold as the best store of value in troubled times. But will it really?Â
Where’s the evidence?
As far as gold’s concerned, the shiny stuff has a history of holding its value in times of trouble. Bitcoin simply doesn’t. It’s only been around since 2009.Â
Call me an old stick-in-the-mud, but I’d prefer to back something with a track record. Past performance is not a guide to the future but, with crystal balls out of stock, it’s the best thing we’ve got. Factor in that the Bitcoin price is based purely on what someone else will pay for it, and you have a recipe for alarming volatility.Â
What I’m doing instead
Rather than buy Bitcoin, I’m doing something that feels far more rational. Snapping up high-quality UK shares that boast some/all of the following attributes.
- Profitable
- High margins
- High returns on invested capital
- Growth potential
- Leader in a (niche) market
- Low debt (or preferably none at all)
Will this Terry Smith-inspired checklist protect me from all risks? Of course not. Share prices could tumble again in 2021. Nevertheless, I can surely tilt the odds in my favour by buying great stocks and sitting on my hands.
Bitcoin bust?
Bitcoin is indeed riding high. I could be proved utterly, hopelessly, completely wrong in my prediction it will crash next year. Perhaps things are different this time.
Even so, I’ll leave you with this. If we assume that a crash does happen, where will those who’ve made a mint turn to next?
Thanks to the derisory returns generated by other assets (e.g. bonds and cash) right now, my money’s on the stock market. This is even more reason, I submit, to buy the best UK shares at the current time.