The Bitcoin price has beaten the FTSE 100 by 50% in the last year: is it time to load up?
In the last year, the FTSE 100’s performance has been relatively disappointing. Despite reaching an all-time high earlier in the year, its price has fallen back so that it is only marginally higher than where it was trading a year ago. Investor sentiment, it seems, is volatile ahead of Brexit. This could continue over the coming months, with the process expected to remain difficult to accurately predict.
In contrast, the Bitcoin price has risen by 50% in the last 12 months. Although it is significantly lower versus where it was at the end of 2017, ultimately the virtual currency has delivered a sound performance for its holders. Looking ahead, could it continue to outperform the FTSE 100?
Brexit
As mentioned, Brexit is likely to have a significant impact on the FTSE 100’s performance. While it is an international index, a quarter of its constituents’ income is derived from the UK. Therefore, the relatively low rate of GDP growth which is predicted for the UK over the next couple of years means that the performance of a range of FTSE 100 shares could suffer to some degree.
That said, three-quarters of the index’s earnings are generated from international markets. As such, Brexit woes could lead to a weaker pound, which could create a positive currency translation adjustment for those companies which report in sterling. With the prospect of ‘no-deal’ being high, it would be unsurprising for the pound to weaken. Even if a deal is struck between the UK and the EU, however, it may not appease the markets. They may decide that Brexit’s unprecedented status means that further discounts to valuations are required.
Long-term potential
While the prospects for the FTSE 100 remain uncertain in the near term, in the long run it could prove to be a better investment than Bitcoin. The world economy continues to have a bright future, with countries such as the US and China having relatively high growth forecasts. The eurozone is also set to perform relatively well, while emerging markets such as India and Brazil have seen their outlooks improve in recent years.
Therefore, investing in a range of international shares within the FTSE 100 could be a shrewd move. And with UK stocks having low valuations in a number of cases, they too could provide sound risk/reward ratios for the long term.
In contrast, bitcoin appears to offer speculation, rather than investment potential. Certainly, it has the capacity to move higher, but this is likely to be due to improved sentiment rather than because of its long-term growth potential.
With a lack of infrastructure and the potential for tighter regulations, the prospect of a long-term, sustainable rise in the price of Bitcoin is difficult to foresee. And with its limitations on size and the low probability that it will ever replace traditional currencies, the FTSE 100 could offer a better risk/reward opportunity for the long term.
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Peter Stephens 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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