Investing in Bitcoin or gold has become increasingly popular in 2019. After all, they’ve both delivered strong returns, with the virtual currency rising by over 100% and the precious metal moving over 15% higher.
Looking ahead, they could continue to deliver strong gains in the short run. However, over the long run they both face risks which may make them less appealing than some investors realise.
As such, buying shares could prove to be a better idea. Low valuations across the FTSE 100 may mean that its returns are relatively high, while its risks can be limited through a diversification strategy.
Potential risks
Bitcoin faces a highly uncertain future. Not only is it impossible to gauge whether the virtual currency offers good value for money or not, regulatory threats remain an ongoing risk to its performance.
A number of lawmakers, such as central bankers, have stated they’ve major concerns about Bitcoin and other virtual currencies. Should this lead to changing regulations, it could hurt the growth prospects of the cryptocurrency’s price in the coming years.
Gold may also face a more challenging long-term outlook than its current price suggests. Although interest rates in the US have fallen in recent months, they’re unlikely to remain at a low ebb in perpetuity.
Therefore, when they do rise, gold could become less appealing compared to income-producing assets. This may cause its price growth to slow in the coming years.
Additionally, if investor sentiment picks up, riskier assets such as stocks may become more appealing than gold. Since the stock market has always recovered from its periods of uncertainty, this situation appears to be highly likely over the long term.
Growth opportunities
While the stock market may experience a period of uncertainty in the short run that leads to capital losses for investors, this could present a long-term buying opportunity.
Across the FTSE 100, there are a number of companies that currently offer margins of safety. Over time, their discounts to intrinsic value may narrow and lead to capital gains for their investors.
Crucially, it’s relatively simple for investors to gauge whether a specific company offers good value for money. This is in contrast to Bitcoin, where investor sentiment is the sole determinant of price. As such, it may be easier to capitalise on the cyclicality of the stock market than it is for the virtual currency.
In addition, many FTSE 100 shares offer high income returns at the present time. The history of the stock market’s total returns shows the reinvestment of dividends can make a major impact on overall returns in the long run. Therefore, the income appeal of shares versus gold could make them a better place to invest for the long term.