Bitcoin is just getting started and has plenty more upside to offer investors.
As alluring as cryptocurrencies can be, they are risky. While the blockchain technology powering these assets is innovative and holds the potential to transform finance as we know it, their role in the future remains ambiguous and borderline obscure.
Yet, there is one cryptocurrency with a proven role that provides investors with the safest exposure to the best the cryptocurrency market has to offer. Here’s why I’m buying Bitcoin (BTC -0.44%) like there is no tomorrow.
1. The halving effect
On April 19, Bitcoin underwent its fourth halving. Occurring roughly every four years, halvings form the foundation of Bitcoin’s robust monetary policy, which prioritizes scarcity value preservation by reducing its inflation by half. With the fourth halving now passed, Bitcoin’s inflation rate now stands at just 0.85%. That makes it less inflationary than what many believe to be the superior store of value and inflation hedge, gold.
Over the long haul, it’s easy to see how continued reductions to its inflation rate will benefit Bitcoin’s price growth. Should demand for the cryptocurrency continue to increase, its diminishing inflation rate will exert more pressure on its finite supply of 21 million coins. Add it all up, and you have the perfect recipe for price appreciation.
Even in the short term, the halving’s effect makes Bitcoin a viable investment today. In the years when a halving occurs, Bitcoin grows by 125% on average. When measured from the beginning of the year, that would put its price at just over $100,000, meaning there is still generous potential for returns today even with its price at roughly $65,000. Yet, the best that Bitcoin has to offer usually materializes in the year after a halving. Historically, during these years, Bitcoin increased by more than 400%.
2. Greatest institutional interest and the clearest role in the financial landscape
For most of Bitcoin’s existence, its rise to the top was driven by retail investors. But now things are about to change. With the approval of spot Bitcoin ETFs, institutional investors with vast reserves of capital are able to easily invest in the cryptocurrency. Now that Wall Street’s biggest names have arrived, it will likely place exceptionally more pressure on Bitcoin’s finite supply, the likes of which it probably hasn’t seen since its earliest days.
On a semi-related note, the fact that Bitcoin even got approved for a spot ETF is an indicator of the market’s current perception of it and its role in the financial landscape. For example, let’s consider that Ethereum (CRYPTO: ETH), the second most valuable cryptocurrency, is in the midst of an intense debate for ETF approval as regulators try to determine whether it is a security or a commodity. If this conversation is being had for Ethereum, you can guarantee that every other cryptocurrency will be questioned in a similar fashion.
Now, I will be the first to admit that just because the Securities and Exchange Commission (SEC) thinks a cryptocurrency is a security doesn’t mean it is the end for a given blockchain. Most of these assets are fairly decentralized and would continue to operate even if the SEC pursued litigation. Remember, cryptocurrencies are traded internationally and not subject to any specific country’s laws.
However, markets don’t like the idea of legislative risks. That’s why Bitcoin is such a safe investment today. The SEC has already deemed it a commodity and beyond its purview of control. This gives it unique staying power and an added layer of insurance that it won’t be hindered by regulatory scrutiny.
3. In a class of its own
In a similar vein, Bitcoin has generated significant institutional interest and has such a clear designation in the financial landscape due to its core characteristics, which make it unique compared to virtually every other cryptocurrency.
When you invest in Bitcoin, you are investing in the most decentralized, secure, and proven cryptocurrency on the market. There is no single group overseeing its operations. We don’t even know who created it. All we know is that its creator went by the pseudonym of Satoshi Nakamoto and has since disappeared.
No other cryptocurrency can claim this. Just about every other cryptocurrency has a known creator and a team of developers maintaining its functionality, making them much more likely to be in the SEC’s scope.
Conversely, Bitcoin has operated more or less in its original form for the last 15 years, devoid of any central figure or authority. In other words, even if the SEC wanted to take action against Bitcoin, it couldn’t. Who would it sue? Bitcoin’s creator is unknown, and it runs on the most decentralized network with thousands of nodes around the world.
Final thoughts
When you add it all up, I would venture to say that there is never a bad time to invest in Bitcoin. Are there better times than others? Sure. Investing in the depths of the crypto winter should deliver better returns than investing at the top. However, data shows that as long as investors hold long enough, even if you bought at the top, you would still see generous returns in the long haul.
As fiat currencies continue to be inflated, institutional interest continues to grow, and halvings continue to pass, Bitcoin is poised to keep on surpassing expectations and showing why it is unlike any other asset. Michael Saylor, notable Bitcoin investor and CEO of MicroStrategy (which owns around 1% of the total Bitcoin supply), might’ve said it best: “I’ll be buying at the top forever.”