Over the past year, those investing in Bitcoin would have seen gains of 25%. This is remarkable, given the turmoil that other investments like stocks and shares have suffered.
In fact, what makes the performance of Bitcoin even more extraordinary is the bounce it has seen since its low in March. Since then, it has rebounded by approximately 84%.
On the face of it then, investors should load up on Bitcoin. But there is more to the story than that.
Investing in Bitcoin
Although Bitcoin’s price has surged recently, it remains a wildly volatile investment. Earlier this month, the price of a Bitcoin reached recent highs of $10,000. However, it should be noted that this figure represents nearly a 50% drop in its value since its highs in December 2017.
This volatility is down to the cryptocurrency having no intrinsic value. And this is the problem I have with Bitcoin: it has no meaningful value.
Bitcoin has no fundamentals. Without fundamentals, it is impossible to put an accurate figure on what Bitcoin’s price should be and to tell if you are overpaying for it.
In time, the demand for Bitcoin may fall, leaving investments worthless. People invest in Bitcoin with the hope that someone will buy it at a higher price in the future. In this way, it is similar to purchasing a piece of art in the hope that its value will eventually soar.
This is not investing. It is speculation.
So why are FTSE 100 stocks and shares different?
Investing in bargain shares
When you purchase FTSE 100 shares, you are buying a part of a business. This means that you take an interest in every aspect of its operation. The company’s revenue, profitability, cash flow, and debt will all play a part in how the market values the company in the long term.
The FTSE 100 has indeed crashed multiple times since its formation in 1984. However, it has always recovered in subsequent years. Bitcoin does not have this sort of heritage.
Investing with a long-term outlook is the best strategy when buying stocks and shares. This should enable market wobbles to be ridden out and for compound interest to work its magic.
As well as investing for growth, FTSE 100 stock buyers can focus on income. I believe dividends make investing in shares more attractive than Bitcoin, and can provide a way to attain passive income. If dividends are reinvested and used to buy more shares, this speeds up the process of compounding interest.
I think it pays to avoid investing in fads and get-rich-quick schemes. Benjamin Graham put it best when he said “in the short run, the market is a voting machine but in the long run it is a weighing machine”.
Although history might not repeat itself, over longer periods the FTSE 100 has continued to grow. Now could be a great opportunity to buy a part of wonderful companies at ultra-low prices. That is where I would put my money right now.
The post Investing in Bitcoin? I think cheap FTSE 100 stocks and shares are better appeared first on The Motley Fool UK.
T Sligo has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020