Bitcoin prices are collapsing! But is it still a better investment than stocks and shares?

All eyes have been back on Bitcoin in recent days after the virtual currency’s value fell through another significant marker.

In mid-week trade, the world’s most popular cryptocurrency saw its market capitalisation fall through the $100bn marker in a move that commentators attributed to a so-called hard fork in Bitcoin cash; that is the splitting of the cryptocurrency into two new currencies, Bitcoin ABC and Bitcoin SV.

The decline in Bitcoin values that started on Wednesday moved into Thursday and eventually saw the virtual currency plough as low as $5,286.50, according to data from CoinDesk. Prices stabilised in the dying embers of the trading week, but many traders are still forecasting fresh falls into 2019. So far Bitcoin has lost 60% of its value from its 2018 starting price of $13,850.40.

It’s natural that when Bitcoin — which accounts for around two-thirds of the market cap of the top five cryptocurrencies — sneezes, the entire asset class catches a cold, to recycle that well-worn journalistic trope. XRP, Ethereum and Litecoin all plunged as well in midweek business.

More volatility ahead?

The Bitcoin cash split has brought the price stability that had reigned since the beginning of August to an end with quite a bang. And who knows when the fight between Bitcoin ABC and Bitcoin SV to decide the superior new virtual currency will end, and where cryptocurrency prices will be when the dust has settled? It would take a brave (or foolhardy) man to attempt to guess this.

The recent sell-off shows just why many investors won’t touch Bitcoin with a bargepole. The make-up of these new-age currencies makes their values almost impossible to predict, and as the boffins over at UBS previously commented: “Fixed supply and unusual demand dynamics make the system susceptible to high price volatility, in turn making it difficult for Bitcoin to step into the role of money or to be a viable new asset class.”

The broker added that this rigid supply mechanism means that demand from speculators is the main catalyst for Bitcoin price moves, and that speculative interest “explains most of the change in Bitcoin prices (over 70%), which could lead to excessive price moves.” This past week proves this point perfectly.

A better investment

As I type, Bitcoin remains extremely unstable, unregulated, owned and controlled by a small cluster of individuals, and its intrinsic value remains a point of fierce conjecture. What is also clear is that, with a lack of obvious drivers, it’s quite possible that the cryptocurrency will continue its price plunge into 2019 and possibly thereafter.

So quite why anyone would choose this asset class in which to invest their hard-earned money instead of stocks is beyond me. Share investing is a tried-and-tested method that has been running on official exchanges for centuries, and while the system is not immune to occasional manipulation and extreme volatility, broadly speaking it’s a much clearer, more robust and less risky way for savers to put their money to work.

Besides, so numerous are the opportunities to make a fortune on the stock markets that there simply isn’t any reason to risk it all with the cryptocurrencies, I believe.