Since the start of April, the interest rate in Bitcoin has resurged. However, it is not yet an asset that appeals to some of the investors seeking investment alternatives that can store value in case of a recession. Although the biggest crypto has made strong gains recently, it may not be out of the woods yet. Some analysts think that the bears may come back to haunt the markets soon.
BTC has made investors become more bullish about its prospects. However, one investor thinks that its high volatility, hypersensitivity to investor investment changes, and availability of an opportunity cost with regards to buying other assets, makes it sensible to avoid Bitcoin.
Investor Sentiment
Since bitcoin always correlates to changes in investor sentiments, its medium-term could experience many challenges. Since the start of 2019, investors have become more bullish. Major indices like the FTSE 100 have so far made strong gains in 2019. Nonetheless, that situation may not prevail over the medium term. Investors may soon become increasingly cautious especially as the prices keep bouncing.
Currently, several risks face the global economy that could make investors become more concerned about its future prospects. A slowing China, Brexit, US-China trade relations and mixed economic data from the US may weigh on investor sentiment. Since Bitcoin appears to be a risky asset that performs well only when other risky assets do likewise, it could be hit hard by a recession.
Volatility
Although the stock market sometimes becomes volatile, Bitcoin seems volatile almost every time. Additionally, there is no tangible reason for the recent price surge in the short run. For instance, with many company valuations, the significant price changes can be accounted for by economic data. Price changes are also related to how the companies’ prospects for their specific industry have changed recently.
In the case of Bitcoin, its price appears to change entirely based on investor sentiment. Demand ranks as the biggest factor on short-term performances of the most popular cryptocurrency. Holding and trading an asset that is highly volatile and that which is challenging to understand why its price keeps changing, means that buying bitcoin could be stressful.
Moreover, since BTC price fluctuations are mysterious, investing in the digital currency could be time-consuming compared to other traditional assets like shares in the stock market.
Opportunity Cost
Since the start of 2018, the cryptocurrency markets, particularly Bitcoin fell heavily. However, several FTSE 100 and FTSE 250 shares still remained worthwhile investments during the same time. Currently, the FTSE 100 has a dividend yield of at least 4% suggesting that it has a wide margin of safety. Hence, it means that many shares at the present time are worth buying.
Although the share prices may suffer from the increasingly uncertain outlook for the global economy, investors can go for defensive stocks. These defensive stocks have proven quite unpopular in recent times which may soon become increasingly in-demand among investors.
Therefore, while Bitcoin’s recent surge may tempt investors to dive in; low valuations across the FTSE 350 appear more appealing. These low valuations could translate into superior risk/reward opportunities in the long-term.
