The 2020 stock market crash has been bad news for UK shares, with the FTSE 100 down 20% year-to-date. But it’s been party time for the Bitcoin price, up 40% over the same timescale.
The cryptocurrency did crash to around $5,000 in March, in the early days of the pandemic. But since then it’s more than doubled. And it’s been even higher, reaching over $12,300 in mid-August before crunching back down again. It still hasn’t quite matched the $13,000 plus peak of June 2019, though. And it’s well below the all-time high of $19,783 from December 2017.
Compared to the FTSE 100, the Bitcoin price has performed much better in 2020 so far. But it’s been a lot more volatile too. The volatility, though, is all on the upside, so there’s no doubt Bitcoin investors have done better this year. Or have they? Well, those who bought at the beginning of the year, and those who got in around the pandemic dip, have been rewarded well.
But if you’d bought a couple of weeks ago, you’d have seen the Bitcoin price fall 15%. And from 2017’s high point, you’d have lost 49% of your money. Since Bitcoin’s all-time high, the FTSE 100 has dropped 20% (all of it in 2020), so it’s the lesser of two losses. But there are very good reasons why the long-term future for FTSE 100 shares should be far rosier than for Bitcoin and other cryptocurrencies.
Investors seeking alternatives
Bitcoin’s 2020 gains are surely only down to investors seeking alternative investments as they’re scared away from the stock market. But to look at the long term, ask yourself where Bitcoin investors got their money from in the first place. Ultimately, new wealth comes from the working combination of capital and labour in our companies — the companies listed on the stock market, in many cases. Without that actual generation of wealth, nobody would have anything to buy Bitcoin with in the first place.
The same goes for gold too, and bonds and savings accounts. All the new money chasing after gold, and all the cash in interest, all comes from the golden goose that is capitalism. That, fundamentally, is why buying shares of companies will surely beat savings accounts in the long run. And bonds. And the price of gold. Oh, and the Bitcoin price.
Nothing behind the Bitcoin price
If you buy Bitcoin now, you do so in the hope someone else will buy it from you later at a higher price. It doesn’t generate any cash, the way companies do. Or pay dividends, the way companies do. And if someone else is to pay you more for it later, they’ve got to get their money from somewhere first.
Without the 2020 stock market crash giving the Bitcoin price a short-term boost, I reckon it would be on the way out as an investment. In fact, I think it still is on the way out. It’s as dead as that parrot, shuffling off its mortal coil — but the stock market crash has kept it nailed to the perch for a little bit longer.
In many ways, Bitcoin is like gold. But without the gold. Warren Buffett had it right when he called it “rat poison squared“. It’s FTSE 100 stocks in an ISA for me, and I reckon they’ll be well ahead in five years time.
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Views expressed 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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