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Versus investing in the JSE. From Moneyweb.

In the six years since May 2018, the JSE has had four down years, against two for bitcoin. Image: Angel Garcia/Bloomberg

The chart below shows what happens when you save 10% of your salary – as virtually all financial advisors recommend – and then invest in either bitcoin (BTC) or the JSE.

It’s an interesting academic exercise, and certainly not advisable to pump all your savings into BTC, but the results are startling – especially at current prices of around R1.38 million.

Read: Is it better to own bitcoin stocks than bitcoin itself?

The results are obviously skewed by the underperformance of the JSE relative to BTC. In the six years since May 2018, the JSE has had four down years, against two for BTC.

The advantage of investing monthly – known as rand cost averaging – is that it removes any necessity to guess the direction of the market. It also locks in savings at favourable prices, particularly as asset prices tend to rise over the longer term.

Source: Moneyweb

Certain assumptions are made in these calculations: the average South African salary in 2023 was a shade above R26 000, according to Stats SA, against about R20 000 in 2018.

We’ve assumed that 10% of the salary is saved monthly and invested in either the JSE All Share Index or BTC.

In 2018, the cumulative savings are just shy of R25 000, based on an average monthly salary of R20 524 at the time.

In the first year, you would have been better off in the JSE, when the investment grew about 7%, while BTC remained virtually unchanged.

Anyone who saved 10% of their salary from 2018 and invested in the JSE would have seen that investment grow to about R190 000 by 2024. In this example, we’ve assumed that the monthly savings are accumulated for 12 months and then invested in one go.

Excellent prices for early savers

The saver who invested in BTC would have locked in savings at some excellent prices. For example, the BTC price in May 2018 was R103 000, which means they would have acquired nearly a quarter of a bitcoin in that year.

The following year, in 2019, bitcoin prices had barely moved, allowing our saver to acquire more BTC, equivalent to nearly half a bitcoin.

This would have been disheartening, for sure, as despondency was the prevailing sentiment after a more than 60% drop in the bitcoin price from its peak in late 2017.

But continuing the savings habit, the benefits were not long in coming.

By April 2024, our saver would have accumulated 0.82 BTC, worth more than R1.1 million.

Results like these pose an obvious question about risks: BTC is far more volatile than the JSE, with wild movements to both the upside and downside.

This is where cost averaging comes in

Those prepared to take on the risk stand to benefit if they take a long-term view. Rand (or US dollar) cost averaging is an increasingly popular savings habit, where a similar amount of savings is invested weekly or monthly into the markets. No attention is paid to price, so as to avoid the often fatal habit of trying to time the market.

The real benefits of BTC rand cost averaging started to show at the beginning of the current bull run, commencing in early 2023.

“What this shows is that bitcoin is the most ‘set it and forget it’ technology in the world,” says Kgothatso Ngako, founder of Machankura, a technology for storing and transferring bitcoin without smartphones or the internet.

Outperformance, and perspective

Adds Glenn Jooste, founder of Bitcoin Ubuntu circular economy in the Western Cape: “With its unsurpassed security assurance of absolute scarcity and inelastic supply, coupled with the growing recognition and demand as a reliable long-term store of value asset, Bitcoin continues to outperform almost everything else in its history.”

Omer Iqbal, CEO of crypto exchange and payments company FiveWest, points out that the BTC performance has been flattered by its price performance in 2023 and 2024, and with this comes increased volatility.

“On the one hand we have bitcoin strutting its stuff with its skyrocketing prices and jaw-dropping volatility, while on the other hand we have the stock market that seems to be chugging along with its ups and downs,” he says.

“While bitcoin is completely outperforming stock markets around the world, it poses its own risks of extreme volatility.”