One asset has attracted more attention than most this year and that’s the Bitcoin price. When the price of the crypto asset crashed in 2018, most investors turned their backs on the Bitcoin and started looking elsewhere for attractive assets.
However, so far this year, it’s chalked up one of the most impressive performances of any financial asset. At the time of writing, the Bitcoin price is up around 240% year-to-date.
What’s interesting is the Bitcoin price has rallied as investors have been taking risk off the table in other markets. This seems to suggest investors are looking to the cryptocurrency to provide safety in a time of uncertainty.
With this being the case, I’m going to try and answer the question, is the Bitcoin price the best investment to own right now?
Buy, sell or hold
Trying to determine whether or not the Bitcoin price is an attractive buy has always been difficult. The problem is, no cash flows underpin the value of the cryptocurrency. As a result, its value is determined by supply and demand.
As it’s impossible to gauge future supply and demand accurately, it’s also impossible to predict what the price will do over the next six, 12, or 24 months.
Still, there seems to be some correlation between the demand for safe-haven assets, such as gold and bonds, and the demand for Bitcoin. As a result, we could assume the price will move higher as uncertainty prevails as more investors seek that safe haven in an uncertain environment.
Considering the above, as uncertainty prevails, crypto currencies like Bitcoin could be a good investment based on their performance so far this year. However, I think if you’re interested in Bitcoin, the best thing you can do is own it as part of a well-diversified portfolio.
Here at the Motley Fool, we’re long term investors and don’t believe in playing the market for short-term profits. With that in mind, I think some of the best investments in the current environment are low-cost FTSE 100 and FTSE 250 tracker funds.
The great thing about these funds is they buy the whole stock index, and you don’t need to worry about picking individual stocks. With uncertainty in the global economy growing, this is quite important because it’s going to be challenging to pick the winners and losers of any trade war.
Historical figures tell us that over the long term, the stock market generally rises but the performance of individual equities tends to be mixed.
So, in this time of uncertainty, I think the best way to make sure you don’t end up with your fingers burnt, is to buy an index tracker fund. You could buy the Bitcoin price alongside, but because it’s so difficult to tell what the future holds for the cryptocurrency, I think it’s only worthwhile doing so if you really know what you’re doing. Cryptocurrencies are not for the faint-hearted.
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Rupert Hargreaves owns no share 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 2019