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Where will Bitcoin be in 5 years?
It would take more than a few minutes to find an asset that has produced a better return over the past five years than that of Bitcoin (CRYPTO: BTC). During this period, the world’s most valuable cryptocurrency increased by 1,000%. To make a comparison, the one with high technological content Nasdaq-100 the index rose 128% in that period.
Bitcoin He’s had a fantastic run over the last year and a half in particular. But things are cooling down, as it’s 13% off its flagship price (as of the morning of May 5). Investors likely see this as a potential buying opportunity.
If we look at the next five years, where could Bitcoin be?
A unique asset
I think the key value proposition of Bitcoin is that it is a rare asset. There will only ever be 21 million coins in circulation, with a programmed inflation rate that has not yet been tampered with in Bitcoin’s roughly 15-year history. As the demand for a fixed good increases, the price also increases.
This is in stark contrast to Bitcoin’s main competitor, fiat currencies. Thanks to irresponsible fiscal and monetary policies, especially in the United States, these currencies are constantly losing purchasing power. Bitcoin’s structure seeks a more controlled solution.
Another factor pushing the price of Bitcoin higher is the advent of a more robust financial services infrastructure. The latest development in this regard was the approval of spot ETF products in January. So far, these have been hugely successful in driving capital inflows into Bitcoin. Additionally, the Securities and Exchange Commission’s decision to approve ETFs can be seen as a regulatory stamp of approval.
There are many companies, from Wall Street banks to scrappy startups, all working on different Bitcoin-related products and services. Therefore, it is easy to believe that this asset will find its way into more portfolios over time.
I am quite confident that in five years the price of Bitcoin will be able to double what it is today. If history is any indication, however, this could prove to be a very conservative outlook.
Risks to keep in mind
After learning some of the characteristics of Bitcoin, it’s hard not to become bullish. This is a special resource worth owning. And I believe it has significant long-term upside. However, investors must also be aware of the risks.
The main risk factor is that the US government bans Bitcoin within its borders, essentially making it illegal to own or mine the cryptocurrency. This would essentially leave out a huge pool of capital, resulting in weakened demand for Bitcoin. But as the value of Bitcoin continues to rise and more of the political and wealthy classes begin to own it, the possibility of a total ban diminishes.
The story continues
Another risk that we cannot ignore is of a more technical nature. Perhaps an approved update to the Bitcoin blockchain creates a software bug that exposes everyone’s private keys, rendering the network useless. Or progress towards quantum computing allows Bitcoin encryption to be broken, once again undermining the security of the network.
But to help alleviate these potential threats, it’s best to realize that Bitcoin nodes will not approve any updates that they believe will cause chaos. And when it comes to quantum computing, there is a high probability that Bitcoin developers will create a way to strengthen the security of the network.
Once you understand these risks, you can set more realistic expectations. While I don’t believe Bitcoin’s performance over the next five years will resemble that of the last five years, it is definitely worth taking a closer look at this cryptocurrency for your portfolio. Just remember to keep a long-term mindset and be prepared for the inevitable ups and downs.
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Neil Patel and its clients have no position in any of the securities mentioned. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.
Where will Bitcoin be in 5 years? was originally published by The Motley Fool