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The ultimate cryptocurrency to buy with $1,000
Bitcoin offers cryptocurrency investors the greatest mix of risk and return.
If you’re looking to invest $1,000 in the cryptocurrency market right now, you’re probably looking for a cryptocurrency with significant upside potential. And, given the current macroeconomic uncertainty, you’re probably also looking for some measure of downside protection.
Looking for a cryptocurrency investment with upside potential and downside protection might seem a little quixotic, but there’s actually a cryptocurrency that offers both. Yes is Bitcoin (Bitcoin -1.67%). If I had $1,000 to invest right now, this would easily be my first cryptocurrency choice.
Bitcoin’s upside potential
Some analysts are now predicting this Bitcoin it could reach a price of $100,000 by the end of this year and $150,000 by the end of 2025. Given Bitcoin’s current price of $63,000, this means you could potentially double your original $1,000 investment within just 18 months.
And, if you look at Bitcoin over the long term, the picture becomes even more attractive. According to Cathie Wood of Ark Invest, Bitcoin could reach a price of $1.48 million by 2030. And, if all goes according to plan, he says, Bitcoin could reach a price of $3.8 million. So we are talking about 25 or even 50x earning potential on your initial investment!
This kind of price performance might seem a little fantastical. But not when you consider Bitcoin’s historical track record. For much of the last decade it has been the best-performing asset in the world, and it hasn’t even come close.
In the decade from 2011 to 2021, for example, Bitcoin experienced annualized returns of 230% per year. The closest asset class (high-growth technology stocks) has seen returns of just 20% per year. Of course, past results are no guarantee of future performance, but there is now solid evidence to suggest that Bitcoin has immense upside potential over a relatively long period of time.
Bitcoin Downside Protection
In terms of downside protection, Bitcoin’s biggest strength is that it is an inflation-resistant asset. This is due to the algorithm carefully controlling the rate of creation of new Bitcoins. Every four years, following a halving, the rate of creation of new Bitcoins is halved. Here because Global Coinbase now refers to Bitcoin as “a programmatically disinflationary asset.” So, if your main concern is inflation, then Bitcoin should be an attractive option.
Image source: Getty Images.
At the same time, Bitcoin also boasts notable scarcity, just like a precious metal. It’s for good reason that many investors refer to Bitcoin as “digital gold.” The maximum lifetime supply of Bitcoin is limited to 21 million coins, and 19.7 million coins are already in circulation. As Bitcoin adoption grows around the world, the impact of this scarcity on prices will only increase.
And there’s another factor that gives Bitcoin downside protection: It’s still largely uncorrelated with other financial assets. In other words, Bitcoin can move forward when other financial assets move forward. Therefore, even if the stock market were to collapse, there is still a chance that Bitcoin will not. This makes Bitcoin a very useful tool for portfolio diversification.
In fact, due to this historical lack of correlation, a growing number of investors now see Bitcoin as a safe haven which can help them avoid the slingshots and arrows of outrageous fortune. One of the main reasons for this lack of correlation is that, until recently, Bitcoin was largely ignored by Wall Street and sat outside the traditional financial system.
The ultimate mix of risk and reward?
Bitcoin, of course, is certainly not risk-free. As they say on Wall Street, there’s no such thing as a free lunch. And Bitcoin exposes you to enormous volatility. In a single 24-hour period, Bitcoin can rise or fall by 10% or more. Given that Bitcoin is traded 24/7 globally, you could theoretically go to bed thinking you’re a millionaire and wake up the next morning only to find that a significant portion of your wealth has been wiped out.
This is why it is so important to maintain a long-term perspective when investing in Bitcoin. This will prevent you from worrying about short-term drops in value. Over the long term, it is difficult to think of a single financial asset that can outperform Bitcoin.
Yes, Bitcoin may no longer be able to offer the types of spectacular returns it offered to early cryptocurrency investors. But, from my perspective, it still offers the ultimate mix of risk and reward.