Bitcoin: Bull vs. Bear | The motley fool

Bitcoin (BTC 1.32%) stands as one of the most explosive investments in history. The cryptocurrency has risen more than 3,900% in the past decade alone. However, the market-leading cryptocurrency has also seen a major decline in valuation and is now trading down about two-thirds from its high.

What’s Next for Bitcoin? Read on to see two Motley Fool contributors outline bull and bear cases for the world’s most valuable cryptocurrency.

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Bull case: Bitcoin is a pillar of long-term strength

Anders Bylund: I am not a Bitcoin maximalist. In my eyes, every portfolio benefits from a healthy amount of diversification. In my own cryptocurrency collection, for example, Bitcoin accounts for only 27% of the portfolio’s total value today.

However, Bitcoin plays a specific role in my crypto holdings, and it’s an easy move to build your long-term crypto investments around this pillar of strength.

Bitcoin has proven its mettle over the years. What started as a small experiment in secure digital bookkeeping has proven its resilience against hacker attacks and rival cryptocurrencies. Many of the biggest crypto rivals on the market today started life as clones of Bitcoin’s code, tweaking only a few of the system’s key parameters. For example, the popular one Dogecoin cryptocurrency is a clone of Bitcoin, running a different mining algorithm and lacking Bitcoin’s lifetime limit on the number of digital coins in existence.

Joke currencies like Dogecoin should fall by the wayside over time because they were explicitly designed to be worthless in the long run. By contrast, Bitcoin’s stingy design parameters make for a clumsy payment processor, but a potentially solid vehicle for storing monetary value over the long term.

The hard-coded limit of 21 million Bitcoins ensures that the cryptocurrency will be scarce in the long term. The last coin should be mined before the year 2140, at which point the minting rewards will be replaced by transaction fees. If cryptocurrencies continue to expand their economic functionality and global reach, each Bitcoin could be worth millions of dollars by then. Experts claim that Bitcoin’s total market capitalization could exceed $300 trillion by then, compared to just $450 billion today. That’s a potential gain of 67,000%. Although the final value may fall far short of the bold target, the profit potential remains enormous.

So, as long as you see a future for blockchain ledgers and digital assets, it seems a little silly to leave Bitcoin out of your portfolio. Today’s volatile youth should grow up to become a rock-solid value platform over the next couple of decades.

Bear case: Bitcoin’s value proposition is messed up

Keith Noonan: Bitcoin was originally championed by many as a decentralized payment method – a literal cryptographic currency. However, it has never seen much actual use as a currency, and it doesn’t seem to make much sense as one. Although transaction times and fees have improved, the token is simply too volatile to be a good medium of exchange, even when it is instantly converted to fiat currency upon receipt.

The popular thesis for why Bitcoin is worth holding has shifted to the token being a form of digital gold that generally appreciates at a much faster pace. As long as the token price continues to march higher in the long term, why wouldn’t you want to own it? But there are elements of the decentralized store of value task that seem shaky.

Bitcoin has been touted as a hedge against inflation and a bulwark against stock market and economic volatility. However, the token and the cryptocurrency market at large have actually traded closely in line with stock market movements and economic news. For example, it seems clear that the Federal Reserve’s interest rate hikes have created significant selling pressure for Bitcoin.

And while the use of the cryptocurrency among institutional investors has helped the coin become mainstream and increase its value, it has also meant that the coin is increasingly tied to the financial systems the cryptocurrency is still championed as an alternative to. With Bitcoin becoming increasingly integrated into the wider financial system, the risk of regulation has also increased.

The main mechanism driving the price higher appears to be FOMO: fear of missing out. That may prove to be enough to send Bitcoin’s appreciation back to new heights, and while there is a great brand and dedicated community behind the token, valuing the cryptocurrency is a speculative exercise.

Should You Buy Bitcoin?

Bitcoin has driven the adoption of cryptocurrencies and stands as the clear market leader in the market. However, it is still a volatile and relatively high-risk investment. The cryptocurrency looks much cheaper after recent sell-offs and may still have great upside, but you should keep your personal risk tolerance in mind when considering whether to add the token to your portfolio.