The Bitcoin price has surged in recent weeks. By comparison, UK shares have struggled. This performance has reignited investor interest in the cryptocurrency. However, while the price of the crypto asset has risen in 2020, the factors which made it a bad investment in 2019 continue to exist.
As such, I think it’s a good idea for investors to avoid Bitcoin in the near term and buy UK shares instead. Today, I’m going to explain why.
The big problem with Bitcoin is there’s nothing underneath the cryptocurrency. It’s worth only as much as investors are willing to pay for it. That makes it almost impossible to estimate how much it’s worth. The values of UK shares, on the other hand, are determined by the business underneath the asset.
There’s also a chance investors could lose everything backing Bitcoin. Over the past few years, there have been several high-profile thefts of the cryptocurrency. Sophisticated hackers have bypassed security systems on highly-regarded crypto exchanges and stolen hundreds of millions of dollars worth of the cryptocurrency.
One of Bitcoin’s most attractive qualities is the fact it’s difficult to trace who’s been using the currency. That’s good news for users who want to hide something, but bad news for the owner who had their assets stolen.
UK shares don’t come with the same risks. That’s one less thing for investors to worry about.
Are UK shares the better buy?
Over the long term, owning UK shares has been a great way to build wealth. The UK stock market has produced an average annual return of around 8% for investors over the past 120 years. Considering this extensive track record, I think it’s likely investors will see a similar return in the decades ahead.
Due to the unpredictable nature of Bitcoin, it’s not easy to project the outlook for the cryptocurrency in a similar way.
As such, I think a diversified basket of UK shares is the better option in the long run. Buying high-quality blue-chip stocks when they trade at low levels is a tried and tested way of building wealth.
After the recent stock market crash, investors have plenty of options when it comes to finding cheap blue-chip stocks. Some of these businesses may struggle in the near term, but others could produce high total returns. Instead of Bitcoin, investors may be better off buying technology stocks, which have performed exceptionally well in the coronavirus crisis.
That’s why I think it’s best to own a diversified portfolio of UK shares. This will allow investors to profit from any stock gains while minimising losses.
I think this approach is likely to produce higher returns than Bitcoin in the long term, with little-to-no risk of a total loss from theft or hacking.
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Rupert Hargreaves 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.
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