The fall in the price of Bitcoin over the last 12 months is likely to have caught many investors by surprise. This time last year, various commentators were stating that the virtual currency could continue to surge higher after reaching almost $20,000. There were assertions made that it could continue to outperform a range of mainstream assets, with investors better off buying the cryptocurrency before it continued its journey northwards.
Now, though, Bitcoin is in a very different situation than had been expected by many investors. Instead of surging higher, it has collapsed. It now trades at around $3,500. That’s a fall of over 80% in one year. More worryingly, perhaps, is the fact that it seems to be on a downward trend which is showing little sign of coming to an end. As such, more pain could be ahead for the virtual currency in my view.
Innovation
Of course, the idea behind the cryptocurrency is appealing. As the world becomes increasingly digital, it could make sense for there to be a virtual currency that replaces traditional currency. And with the world becoming increasingly globalised, a virtual option could offer greater efficiency and ease of use for consumers across the world.
Furthermore, the blockchain technology on which Bitcoin is based is already being used in a variety of real-world applications. It is helping to provide greater simplicity, security and efficiency to a number of sectors, and this trend could increase as it becomes increasingly mainstream. As a result, investing in companies which are able to utilise blockchain technology in order to improve their business models could be a shrewd move.
Risk
However, investing in Bitcoin itself seems to be too risky. A glance at its chart shows that even while it experienced a surge from $1,000 at the start of 2017 to as much as almost $20,000 by December 2017, it experienced significant volatility. Therefore, for investors who are seeking long-term capital growth, it may be more akin to gambling than investing. That’s especially the case as there are no fundamentals behind the cryptocurrency through which investors can ascertain if it is time to buy or sell at a particular moment in time.
Rewards
Of course, the potential rewards from Bitcoin could be significant. As 2017 showed, it can deliver stunning growth over a short time. And with it having recovered from disappointments in previous years, 2019 could be a year when it returns to growth following 2018’s devastation.
However, it is exceptionally difficult to determine the probabilities of a rise or a fall for the currency. Since its price is largely determined by demand and supply, its recent downtrend may lead to further selling and continued caution from investors.
In contrast, the FTSE 100 and wider stock market appear to be cheap based on various fundamentals such as dividend yield, price-to-earnings (P/E) ratios and other metrics. As such, and while their rewards may not be as high, they appear to be more appealing investments for the long run. While Bitcoin may be a great idea, investing in it instead of shares may not be a worthwhile move.