While Bitcoin’s performance has stabilised in 2019, it has continued to disappoint on a relative basis. Its decline of over 80% following it reaching an all-time high of nearly $20,000 in December 2017 may have come to an end for the time being, but it has underperformed other assets. For example, the FTSE 250 has risen by 9% since the start of the year, while the Bitcoin price has moved around 4% higher.
Indeed, investors in Bitcoin could be better off buying a tracker fund in the long run, rather than risking their hard-earned cash on the virtual currency. It could provide higher returns, less risk and, perhaps most importantly, require next-to-no effort on the part of the investor.
Although buying shares in companies could be a worthwhile move, tracker funds also have appeal for investors who perhaps lack the time to research stocks, or who wish to gain a large degree of diversity. It is possible to buy tracker funds that charge an exceptionally low annual fee, with under 20 basis points now being the norm. Although there is tracking risk, over the long run their performance generally follows the wider index fairly accurately.
Buying a tracker fund is incredibly straightforward. An online share-dealing account means that it can be undertaken with a few clicks of a mouse button. An investor may then not need to even think about the tracker fund, never mind take any action, for a sustained period of time.
In contrast, buying Bitcoin is a far more difficult process. Its lack of regulation means that it is difficult for an investor to know where to buy it, as well as store it. This can mean time is taken up researching the cryptocurrency industry. Due to its volatile nature, as evidenced by its performance over recent years, investors in Bitcoin may also find themselves spending time focusing on its future prospects. This could be time that is better spent elsewhere.
The risk of loss from Bitcoin is clearly high. It may also be argued by some investors that its return potential is also more impressive than that of the FTSE 250. The future prospects for the virtual currency, though, remain uncertain. Regulatory risks are high, while it appears to lack the infrastructure to take over from traditional currencies. Its limited size may also mean that its real-world usage potential is somewhat lacking.
While a recovery for Bitcoin cannot be ruled out, it appears to offer high volatility, high risk and may require significant effort to buy and store on the part of the investor. A FTSE 250 tracker fund seems to offer a reliable track record of growth, relatively modest risk and requires little effort on the part of the investor. As such, it may be possible for an investor who spends a minimal amount of time on their portfolio to outperform Bitcoin over the long run.
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