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Is Bitcoin Still the Gold Standard of Cryptocurrencies?
With a market capitalization of approximately $1.3 trillion, Bitcoin (CRYPTO: BTC) continues to reign as the world’s most valuable cryptocurrency. It is no surprise, then, that both retail and institutional investors have generally chosen Bitcoin as the first cryptocurrency they add to their portfolio.
However, the cryptocurrency faces new challenges as it tries to go mainstream, and its stellar 15-year performance record will be hard to replicate. So, is Bitcoin still the gold standard for cryptocurrency investors?
Upside potential
The main factor driving Bitcoin’s popularity among investors has been its long history of outperforming the market. In the decade from 2011 to 2021, it was the best-performing asset in the world, and it wasn’t a close race.
The cryptocurrency has returned 230% annually. The next best asset class, tech stocks, have returned just 20% annually. After a down year in 2022, Bitcoin is up another 150% last year. And in the first half of 2024, it is up another 50%.
But how long can it keep up this performance? While some investors think its best days are behind it, there is still optimism that Bitcoin can continue to churn out spectacular returns for the next five years.
For example, ARK Invest’s Cathie Wood has set a price target of $1.48 million for the cryptocurrency in 2030. Given its current price of around $65,000, that implies returns of nearly 87% per year. So, yes, Bitcoin’s performance could slow, but Wood’s analysis suggests it should continue to offer plenty of upside.
Risk-return profile
Another factor that has made Bitcoin the gold standard for cryptocurrency investors is its unique risk-return profile. For most of its existence, it has not been correlated to any major asset class, which presents a huge potential for portfolio diversification.
With digital currency, you theoretically have an asset that zigs and zags while the rest of the market zags. This is especially important if you are pessimistic about the overall economy or are particularly sensitive to geopolitical risk.
Additionally, Bitcoin has some similar characteristics to gold. It has a limited lifetime supply of just 21 million coins, so there is an inherent scarcity, just like gold.
And a unique halving mechanism built into its algorithm ensures that it is a disinflationary asset over time. Every four years, as a result of the halvingthe rate of creation of new bitcoins is halved. Therefore, many investors see it as a form of “digital gold” and a potential hedge against inflation and economic uncertainty.
The story continues
Image source: Getty Images.
General acceptance
In January 2024, the cryptocurrency market experienced a watershed moment with the launch of new spot Bitcoin exchange-traded funds (ETFs). For the first time ever, investors could buy this cryptocurrency as easily as they could buy their favorite tech stock.
In the first six months of this year alone, these new ETFs have seen inflows of over $30 billion, which shows how much pent-up demand there was for this new product.
The launch of the new ETFs is important because they indicate the growing mainstream acceptance of Bitcoin. As investors, both large and small, begin to allocate a portion of their portfolios to cryptocurrencies, the leading digital currency should become widely held by more and more investors.
Already, some of Wall Street’s largest financial institutions have thrown their support behind these ETFs. This is especially important to note given how pessimistic some of these institutions were about Bitcoin just a few years ago.
Can another cryptocurrency ever replace Bitcoin?
Of course, it now has many potential challengers, the most promising of which is Ethereal (CRYPTO: ETH). It has played second fiddle to Bitcoin since its launch in 2015, but some cryptocurrency analysts believe it has the potential to one day surpass Bitcoin’s industry-leading market cap, given its much broader use case. Ethereum has produced spectacular market returns over the past decade and will soon get its own spot ETF.
However, with a market cap of just under $420 billion, Ethereum remains significantly smaller than Bitcoin and would need to accelerate its growth rate to overtake it.
For now, then, Bitcoin continues to be the gold standard for investors. As long as you are comfortable with the risk and volatility of investing in cryptocurrency, Bitcoin remains the best way to access this unique asset class.
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Domenico Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
Is Bitcoin Still the Gold Standard of Cryptocurrencies? was originally published by The Motley Fool