3 reasons why you should invest in Bitcoin

by James · August 6, 2022

Of all the cryptocurrencies available today, one stands out from the rest. Apart from being the original and most famous cryptocurrency, Bitcoin (BTC -0.02%) is also uniquely secure and decentralized, compared to other cryptocurrencies. Here are three other reasons why it should be part of every crypto investor’s portfolio.

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Bitcoin is the oldest cryptocurrency

Neil Patel: Launched to the public in January 2009, Bitcoin is the oldest crypto out there. Its introduction as an innovative way two unrelated parties could exchange value with each other with just an internet connection and no central authority between them was revolutionary. Despite the extreme volatility many investors are all too familiar with, Bitcoin has still produced a remarkable return of nearly 700% over the past five years, easily breaking S&P 500his performance at the same time.

It may be the oldest cryptocurrency, but that doesn’t necessarily make it a good investment. Ethereum (ETH 3.07%)the world’s second oldest and second most valuable crypto, with a market cap of $196 billion at the time of writing, built on what Bitcoin lacked by introducing smart contracts to the mixture.

Smart contracts are software that runs itself when two unrelated parties satisfy the requirements of a particular contract. Ethereum promises an unlimited number of decentralized applications, something Bitcoin does not have the capacity for. Accordingly, Ethereum can also be a worthy investment.

Nevertheless, Bitcoin remains the undisputed leader in the space, representing approximately 41% of the entire cryptocurrency market (as of August 4). As such, it is usually the first exposure to the crypto market for both individual and institutional investors. Moreover, Bitcoin’s long operating history has invited the development of a number of financial tools, such as Bitcoin-specific exchange-traded funds and custody services, which make it easier to buy, sell and store the asset. This only increases its status as a legitimate financial asset.

The Lindy effect tells us that the future life expectancy of a new technology or idea is proportional to its current age. Therefore, the longer Bitcoin remains alive, active and of interest to investors, the less likely it will die off and fail. And that’s why it is deserves a place in portfolios.

Bitcoin is in short supply

Michael Byrne: Another reason why every investor should own at least some Bitcoin in their portfolio is the simple but important fact that there will always be a finite amount of Bitcoin. Total supply is limited to just 21 million Bitcoins.

In a world where governments and central banks can print more money at any time, this inherent inelasticity is an appealing aspect. This limited supply and the global nature of the network make Bitcoin a viable option for people around the world who want a safety valve against reduced purchasing power in their own currency. Unlike the dollar, euro or Turkish lira, no one can decide to print another million Bitcoins to ease monetary conditions.

The price of Bitcoin, like many commodities, is ultimately determined by supply and demand, and Bitcoin becomes more difficult to obtain as time goes on. Over time, mining new Bitcoins will become increasingly difficult, due to a process known as halving, so fewer will be created in the future. By the start of 2022, around 19 million Bitcoins had already been mined, so there are only 2 million left, with the last Bitcoin expected to be mined in the year 2140.

This is in stark contrast to the elastic nature of fiat currencies. The US printed more currency to support the economy and provide citizens with direct stimulus payments during the COVID-19 pandemic, which ultimately led to inflation and reduced purchasing power for every dollar in existence. Other global governments did the same.

Bitcoin is a global network, and its potential as a store of value has even more appeal in countries such as Turkey, where inflation has been widespread and the purchasing power of the lira has fallen significantly. In 2021, Morgan Stanley’pp (MS 0.90%) Head of Emerging Markets and Chief Global Strategist Ruchir Sharma observed this dichotomy, noting that:

Led by the Fed, all major central banks have been printing money like crazy to keep economies afloat…undermining confidence in all national currencies. Twenty percent of all dollars in circulation were printed in 2020, and that glut was a huge boost to the appeal of Bitcoin, which was designed with a gradual process to “mine” new coins and a limited supply.

I don’t know if the price of Bitcoin will go up or down tomorrow or even a year from now, but I feel good owning at least a small part of this limited asset as a hedge against future increases in the supply of others global currencies.

Bitcoin is the leader of crypto

RJ Fulton: Before the crypto asset class became as diversified as it is today, people looking to invest in cryptocurrency had only one option – Bitcoin. For this reason, Bitcoin’s market cap dominates the share of values that make up the entire cryptocurrency asset class.

Because of this overwhelming value in Bitcoin, it serves a similar role to cryptocurrency as S&P 500 serves the stock market: Both serve as indicators of general health and trends. The only difference is that Bitcoin does this for crypto.

Until 2017, Bitcoin accounted for more than 90% of all value in cryptocurrencies. Today, this number is around 40%, but it was as high as 70% in December 2020. Over the last decade, the share of money in Bitcoin, relative to all other cryptocurrencies, has decreased – but it still affects crypto trends . , although the share of the market share is shrinking.

To measure this, we can look at correlation values to get a better insight into how other cryptocurrencies trade in relation to Bitcoin. Values closer to one have a positive correlation to Bitcoin – meaning the cryptocurrencies follow similar price trends. A value close to zero indicates that there is no correlation.

Ethereum, the second most valuable cryptocurrency by market cap, has a correlation value with Bitcoin over 0.8 over the past year – a very strong correlation. The third most valuable cryptocurrency by market cap (that is not a stablecoin) is Binance coin. It has a strong correlation value of around 0.75 to Bitcoin. For all meme coin fans out there, Dogecoin‘s correlation to Bitcoin hovers around a strong 0.68.

Although cryptocurrencies are notorious for being complex, investing in them can be simple. Although other cryptocurrencies offer attractive upside, they ultimately trade the same way as the world’s original cryptocurrency over a long period of time. Don’t overcomplicate it – Bitcoin offers the safe and proven route.