With a market capitalization of approximately $1.3 trillion, Bitcoin (BTC) continues to be the most valuable cryptocurrency in the world. Therefore, it’s no surprise that both retail and institutional investors typically choose Bitcoin as the first cryptocurrency to add to a portfolio.
However, modern Bitcoin is facing new challenges as the value explosions of the early years are only expected by the most ardent crypto-enthusiasts. So, can modern Bitcoin be called the gold standard for crypto investors?
Growth potential
The main factor behind Bitcoin’s popularity among investors is its long track record of delivering above-market returns. For a decade, from 2011 to 2021, it was the most profitable asset in the world. The cryptocurrency had an annualized return of 230%.
The next best asset class, technology stocks, yielded returns of just 20% per year. After a downturn in 2022, Bitcoin rose 150% in 2023. And it’s up another 50% in the first half of 2024.
But how long can modern Bitcoin maintain such performance? While pessimists believe that the best days of the first cryptocurrency are behind us, an optimistic forecast says that Bitcoin can continue to generate impressive returns for the next fifty years.
For example, Cathie Wood of ARK Invest has set the cryptocurrency’s target price at $1.48 million in 2030. Given the current price of BTC at around $65,000, this implies a return of almost 87% per year. So, while Bitcoin’s performance may be slowing down, Wood’s analysis shows that it should continue to show significant growth.
Risk-to-reward ratio
Another factor that has made Bitcoin the gold standard for crypto investors is its unique risk-to-reward ratio profile. It has not been linked to any major asset class for most of its existence, and this presents huge potential for portfolio diversification.
With digital coinage, investors theoretically have an asset that goes up while the rest of the market goes down. This is especially important when sensitive to geopolitical risks.
Moreover, today’s Bitcoin has certain characteristics similar to those of gold. Its lifetime supply is limited to just 21 million coins, so, as with gold, it is inherently scarce.
And the unique halving mechanism built into its algorithm ensures that over time it will become an anti-inflationary asset. Every four years, halving halves the rate at which new Bitcoins are created. Thus, many investors see it as a form of “digital gold” and a potential hedge against inflation and economic uncertainty.
Public opinion
In January 2024, the crypto market experienced a watershed moment with the launch of new spot Bitcoin exchange-traded funds (ETFs). For the first time in history, investors could buy this cryptocurrency as easily as they could buy their favorite tech stocks.
In the first six months of this year alone, more than $30 billion dollars flowed into these new ETFs, showing just how much pent-up demand there was for this new product.
The launch of these new ETFs is important because they point to the growing acceptance of Bitcoin by the mainstream. As investors, both small and large, begin to put a portion of their portfolio into cryptocurrency, the leading digital currency is becoming widely accepted by more and more investors.
Some of the largest financial institutions on Wall Street have already pledged their support for these ETFs. This is especially important to note given how negatively some of these institutions viewed Bitcoin just a few years ago.
Can any cryptocurrency ever displace Bitcoin?
Of course, it has many potential rivals right now, the most promising of which is Ethereum (ETH). Since its launch in 2015, it has played the second role in the market after Bitcoin, but some crypto analysts believe that it basically has the potential to surpass the market capitalization of the first cryptocurrency, given its much broader set of capabilities. Ethereum has delivered impressive market returns over the past decade.
However, with a market capitalization of just under $420 billion, Ethereum remains significantly smaller than today’s Bitcoin and will need to accelerate its growth rate to ever overtake it.
Overall, we can conclude that Bitcoin continues to be the gold standard for investors at the moment. For those who are not afraid to take on the risk and volatility of cryptocurrency investing, Bitcoin remains the primary way to access this unique asset class.
