Bitcoin has had a bright start to the year. It ended 31 December trading at $7,177, having doubled over the course of 2019. Its momentum has spilled over into 2020, and it trades at $8,652 at time of writing, a rise of just over 20% year to date.
Nobody can agree why. Some blame rising tensions between the US and Iran, as many investors see the crypto-currency as a safe haven. Confidence may also be growing as new Bitcoin funds and futures trading platforms launch. The rewards for mining Bitcoin will halve in May, and the reduced incentive could tighten supply.
As ever, nobody knows for sure. What I do know is that if I had £20k to invest today, I wouldn’t put a penny of it into Bitcoin. The virtual currency is simply too uncertain. It is volatile and moves randomly. It could go anywhere from here. The same goes for other altcoins such as Ethereum, Ripple, and Litecoin.
Time to get real
To me, a better way to invest the money would be to return to the real world, and invest in stocks and shares instead. As Warren Buffett, the most famous and successful investor of all time, once said: “Never invest in a business you cannot understand.”
I don’t really understand Bitcoin. I don’t see the point, what practical uses it has, or what factors are likely to determine its future movements. For me, that makes investing in Bitcoin pure speculation.
I prefer to buy stocks, because they are hooked into the real-world performance of the global economy. By investing in the stocks of companies, you are buying businesses that actually make and sell real products, to real people.
Those products can be a vast range of things – oil, pharmaceuticals, mobile phone contracts, clothes, cars, houses, you name it. They are the lifeblood of the global economy, and underpin our daily lives, and the lives we aspire to lead.
Take your returns tax-free
I would invest inside a Stocks and Shares ISA, because then you can take all of your capital growth and dividend income free of tax, for life.
The rewards can be huge. I have just written about one stock that turned £10k into £127,500 in just five years. If you prefer to spread your risk by investing in collective funds, you can also enjoy outsize returns. For example, this tech investment trust is up 550% in 10 years.
So I’d forget Bitcoin. Instead, take time to research shares with high quality, underlying real-world businesses, and develop a target list of companies to consider buying. Next time the stock market dips, look at your watch list, and buy one of them.
I would use as much of this year’s £20k ISA allowance as I could before it expires on 5 April, then start on next year’s. Over time, you have a far better chance of building a £1m portfolio than by gambling on Bitcoin. Because that’s what it is, a gamble.