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Which is a better investment for your pension - FTSE 100 or Bitcoin?

When planning for retirement, the choice of investment can significantly impact the size of the pension pot. Traditional investments, like those tied to the FTSE 100, have long been considered stable choices.


However, the rise of digital currencies, particularly Bitcoin, has introduced a high-growth alternative that's hard to ignore.


This blog compares the performance of a pension invested in the FTSE 100 to one invested in Bitcoin from January 1, 2017, to the present, providing a snapshot of their respective investment outcomes.

Starting Point: January 2017


FTSE 100 Overview


The FTSE 100, a stock index representing the 100 largest companies listed on the London Stock Exchange, is a bellwether for the overall health of the UK’s corporate sector. It is favoured for retirement funds due to its stability and the consistent dividends paid out by many of the companies it includes.


Bitcoin Overview


Bitcoin, on the other hand, emerged as a speculative investment with substantial volatility. Its value is driven by market demand, technological advances, and regulatory changes in the cryptocurrency landscape. Unlike traditional stocks, it offers no dividends, making capital appreciation the sole potential benefit.


Investment Performance Comparison


FTSE 100 Performance


From the start of 2017 to now, the FTSE 100 has shown moderate growth. The index started at 7,142 points on January 1, 2017, and despite fluctuations due to events like Brexit and the COVID-19 pandemic, it has seen a gradual upward trend, with normal dips and recoveries along the way. Overall, the growth has been relatively stable, with dividends providing an additional return on investment. However, the total return has been modest, typically reflecting the slow and steady nature of mature equity markets.


Bitcoin Performance


Bitcoin's journey since January 2017 has been nothing short of dramatic. Starting at around $1,000 per Bitcoin at the beginning of 2017, it saw a meteoric rise to nearly $20,000 by December of the same year, followed by a significant crash in 2018.


Since then, Bitcoin has experienced multiple cycles of rapid value increases and sharp declines, reaching all-time highs above $60,000 in early 2021 before retracting to lower levels. At time of writing, Bitcoin sits at around $65,000, having recently halved the reward given to miners.


Risk vs. Reward


FTSE 100


The FTSE 100, while generally less volatile, is not immune to dips caused by economic downturns and global crises, which can impact the performance of the companies within the index. However, the risk associated with this index is considerably lower compared to Bitcoin, making it a safer bet for those who prefer stability, especially nearing retirement.


Bitcoin


Bitcoin, being highly volatile, can offer significant gains within a short period, as evidenced by its explosive growth phases. However, this comes with high risk, including sharp declines that can see half the value wiped out in weeks. The risk level is high, and the potential for stress and financial loss is something that pension investors must consider carefully.


If you understand the cycles of Bitcoin, however, and how a halving happens every 4 years, you could use such information to your advantage as an investor.


Diversification and Portfolio Strategy


Diversifying one’s pension investments is a prudent strategy to mitigate risks while capitalizing on potential high returns. An investor might consider allocating a portion of their pension to high-risk options like Bitcoin, while keeping a substantial base in more stable assets like the FTSE 100.


This approach balances potential high returns from Bitcoin with the stability and steady growth from FTSE 100 investments.


Alternatively, if you believe that fiat currencies are failing due to the massive oversupply from quantitative easing followed by excessive printing through COVID-19, then Bitcoin could be the hedge against monetary debasement that you’re looking for.


Long-term Outlook


The long-term outlook for the FTSE 100 is one of steady growth with regular dividends, aligning with traditional retirement planning strategies.


Bitcoin, while offering the potential for substantial returns, carries with it considerable uncertainty. Its future depends on factors such as technological developments, regulatory environments, and its adoption as a payment method or a store of value.


In conclusion, while Bitcoin has massively outperformed the FTSE 100 in terms of growth since 2017.


The FTSE 100 has retuned around 28.5% since the start of 2017.


In the same time, Bitcoin has returned around 6,400%.


If you want exposure to Bitcoin and other cryptocurrencies in your pension and own a U.K. business, get I touch with us at Utopia Digital Asset Management today.

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