Bitcoin versus shares
It’s an interesting conundrum because digital currencies like Bitcoin are largely unregulated. However, ASIC is motivated by the weight of investor interest. With safe haven investments like savings accounts delivering returns approaching zero, it’s understandable that plenty of Australians are looking for alternative assets with the potential for healthy returns – and Bitcoin is among them.
A Finder survey revealed that 17% of Australians – equivalent to 3.3 million people – now own a form of cryptocurrency. That’s up from 12% back in January.
Cryptocurrencies already feature in stock exchange listed products elsewhere in the world. We’ve seen, for example, the launch of Bitcoin-based exchange traded funds (ETFs) in Canada[1].
But just because people want to tip money into digital currencies doesn’t make them a great investment. Worryingly, plenty of ordinary Australians are likely still losing money on Bitcoin.
As a guide, Bitcoin started 2021 trading at around $50,000 (I’ll stick with Aussie dollars here). By late April it was worth over $80,000. Great news if you’d stocked up in January. Not so great if you bought Bitcoin in May, when it started a downward run. As I write in early July, Bitcoin is trading at $45,500[2].
Is the rollercoaster ride of Bitcoin and other cryptocurrencies worth it? Let’s look at it this way. The Aussie sharemarket has dished up total returns – dividends plus capital growth – of 27.5% over the last 12 months; 10.9% annually over the last five years; and an average of 8.95% per annum over the last 10 years[3].
Those are very solid returns. Even better, the returns are a mix of ongoing dividends plus capital gains.
By contrast, Bitcoin and other cryptocurrencies only offer capital gains. There are no ongoing returns. So you need to sell the digital currency to cash in your profits. Get your timing wrong, and your investment could be worth a lot less than the price you paid for it.
Maybe you can handle the volatility and risks of cryptocurrency speculation, though I’d be inclined to only tip in what you can afford to lose. For a well-regulated investment, the Aussie sharemarket has a strong track record of delivering healthy long term gains.
Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.
Frequently Asked Questions about this Article…
Many Australians are turning to Bitcoin as an alternative investment due to low returns from traditional safe haven investments like savings accounts. With the potential for healthy returns, Bitcoin has become an attractive option for those seeking alternative assets.
According to a Finder survey, 17% of Australians, which is equivalent to 3.3 million people, now own some form of cryptocurrency. This is an increase from 12% earlier in the year.
Yes, Bitcoin-based exchange traded funds (ETFs) have been launched in countries like Canada, allowing investors to gain exposure to Bitcoin through stock exchange listed products.
While Bitcoin offers the potential for capital gains, it is highly volatile and unregulated. Many ordinary Australians may still be losing money on Bitcoin, so it's important to only invest what you can afford to lose.
The Australian sharemarket has delivered solid returns, with a mix of dividends and capital growth. Over the last 12 months, it has provided a total return of 27.5%, compared to Bitcoin's volatile price changes.
Bitcoin is highly volatile and offers no ongoing returns like dividends. Investors need to sell their holdings to realize profits, and poor timing can result in significant losses.
The Australian sharemarket has a strong track record, delivering an average annual return of 10.9% over the last five years and 8.95% per annum over the last 10 years, making it a well-regulated investment option.
It depends on your risk tolerance and investment goals. Bitcoin offers potential for high returns but comes with significant volatility and risk. The Australian sharemarket provides more stable returns with a mix of dividends and capital growth.