Earlier in the month, the Bitcoin price climbed above £20,000 for the first time in the history of its circulation. And it has risen higher since then. Staggeringly, that figure represents a 280% increase in the cryptocurrency’s valuation since the beginning of 2020.
However, in spite of the meteoric rise of Bitcoin, I think it would be unwise for investors to dismiss the potentially lucrative investment opportunities arising from cheap FTSE 100 shares over the coming year.
The Bitcoin price is on a tear
While the rocketing Bitcoin price is certainly impressive, I think investors ought to proceed with caution. That’s especially now that the virtual currency sits at an all-time high. That’s not to say that Bitcoin’s valuation won’t continue to increase. But I see it as an indicator to think twice.
Considering its valuation is derived from sheer speculation, the price of Bitcoin could feasibly plunge as swiftly as it rose. In fact, that’s exactly what we saw happen back in December 2017, when Bitcoin was worth around £14,748. Less than one year later, that same Bitcoin was trading for £2,944 in November 2018.
All in all, while I certainly think there could be a place for Bitcoin as part of a diversified investment portfolio, I’d be wary of allocating too much weight towards the virtual currency. After all, Bitcoin’s last 11 years in circulation have demonstrated a few things. One being that the cryptocurrency is a notoriously volatile investment, with no way of determining its intrinsic value.
Cheap FTSE 100 shares: lucrative investment opportunities
By contrast, it’s entirely possible to determine the underlying value of shares trading on the stock market. That’s primarily thanks to the generation of cash flows and the existence of dividend payments. What’s more, valuation metrics can be used to establish whether or not a stock appears cheap or overpriced.
Moreover, in spite of the recent strong performance of the FTSE 100 thanks to the vaccine breakthroughs and a Brexit deal ensuring tariff-free trade with the EU, many stocks still appear relatively cheap in my eyes. After all, many UK shares have failed to bounce back as strongly as their international counterparts in recent months.
For example, a multitude of companies in the FTSE 100 are still trading well below their average historic valuations. Businesses such as easyJet, JD Wetherspoon and Cineworld (which is part of my own portfolio) instantly spring to my mind. While a vastly reduced valuation doesn’t automatically mean that a company’s shares are cheap, it could suggest that the stock has been oversold and is thus undervalued. That said, with risky stocks such as these, I’d always do a lot of research before buying.
But as the UK economy continues to steadily recover from the impact of the pandemic, 2021 could be a year of promising growth. For instance, we may witness the comeback of struggling industries such as aviation, hospitality and leisure. Ultimately, this could result in FTSE 100 shares, which appear cheap now, not staying cheap for much longer.
My final verdict
All things considered, despite the lucrative appeal of Bitcoin, I’m inclined to keep most of my focus on cheap FTSE 100 shares that could doubly my money over the coming years. With the cryptocurrency sitting at an outstanding all-time high, I reckon prioritising cheap FTSE 100 shares that look set to rebound in 2021 is a smart move.