The rolling Covid-19 crisis and fears over a no-deal Brexit have hit UK share prices hard in 2020. Investor fears have worsened in December too on spiking infection rates and the prospect of severe UK-EU trade disruptions from 1 January. The FTSE 100 is now down 15% from the beginning of January.
Compare that with the performance of Bitcoin over the same period. The virtual currency is up a whopping 200% from last New Year’s Eve. Just this week it’s struck record peaks above $24,000 — taking out the 2018 record high by a cool four-and-a-bit grand — and it could be on course for more significant gains in the weeks and months ahead.
I won’t be rushing to get in on the Bitcoin craze, though. I’ll continue investing my money in UK shares with my Stocks and Shares ISA.
Big Bitcoin questions
2020 has been a gamechanger for Bitcoin because institutional investors have piled into the crypto asset en masse. According to Nickel Digital Asset Management, “Current buying is driven by corporates, major institutional holders, dedicated funds, and retail platforms such as Square and PayPal.”
This is vastly different from the rally of three years ago, it says. Back then Bitcoin prices were driven by a “combination of a cross-border transfer squeeze and a speculative bubble.” It’s clear that the seal of approval from major organisations has helped bolster faith in Bitcoin this time around. PayPal itself has begun letting users trade in, and purchase with, the digital asset in recent months.
For my money, though, there’s still too many key questions over the legitimacy of Bitcoin to encourage me to invest here rather than in UK shares. Critically, a Bitcoin-backed exchange-traded fund (ETF) is still to be signed off by the US Securities and Exchanges Commission. I can understand how something like Bitcoin could prove popular in an increasingly digital world. But I’m still to be convinced about what one of those in-demand coins are actually inherently worth. Some investment experts like Warren Buffett reckon they’re essentially worthless.
Sticking with UK shares
Finally, I’m reminded of the colossal correction that Bitcoin prices endured last time they rocketed in 2017. Then they lost almost 60% of their value in just eight weeks. The cryptoasset might have more backing from institutional investors this time around. But that doesn’t mean to say that another burst in the Bitcoin bubble isn’t about to happen.
I can’t see any reason to take a gamble with Bitcoin today. It might well prove to be the currency of the future. But I’m not prepared to lay my hard-earned cash on the line on an as-yet unproven asset when I can more or less be guaranteed of making big returns by buying UK shares. The average rate of yearly return for long-term ISA investors like me sits at a mammoth 8% to 10%, studies show.
The 2020 stock market crashes provides an opportunity for me to make even better returns than this, too. The UK shares I buy today are likely to rocket in value as economic conditions improve, corporate profits bounce back and market confidence recovers. And there are plenty of top-class, cut-price British stocks for me to choose from today. So why take a risk with Bitcoin?
The post Forget the soaring Bitcoin price! I think buying UK shares in an ISA is a better way to get rich appeared first on The Motley Fool UK.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended PayPal Holdings and Square and recommends the following options: long January 2022 $75 calls on PayPal Holdings. 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