With a market cap of approximately $1.3 trillion, Bitcoin (CRYPTO: BTC) continues reigning as the world’s most valuable cryptocurrency. No surprise, then, that both retail and institutional investors have typically chosen Bitcoin as the first crypto they add to their portfolio.
However, cryptocurrency faces new challenges as it attempts to go mainstream, and its stellar 15-year track record of performance will be difficult to replicate. So, is Bitcoin still the gold standard for crypto investors?
Upside potential
The primary factor driving Bitcoin’s popularity with investors has been its long track record of delivering market-beating returns. During the decade from 2011 to 2021, it was the best-performing asset in the world, and it wasn’t a close race.
The crypto delivered returns of 230% per year. The next-best asset class — tech stocks — delivered returns of just 20% per year. After a down year in 2022, Bitcoin soared by another 150% last year. And through the first half of 2024, it is up another 50%.
But how long can it keep up this performance? While some investors think that its best days are behind it, there is still optimism that Bitcoin can continue to churn out spectacular returns for the next half-decade.
For example, Cathie Wood of ARK Invest has set a $1.48 million price target for the cryptocurrency in 2030. Given its current price of roughly $65,000, that implies returns of nearly 87% per year. So, yes, Bitcoin’s performance might be slowing, but Wood’s analysis suggests that it should continue to deliver plenty of upside.
Risk-reward profile
Another factor that has made Bitcoin the gold standard for crypto investors is its unique risk-reward profile. For much of its existence, it has been uncorrelated with any major asset class, and that presents enormous potential for portfolio diversification.
With the digital coin, you theoretically have an asset that zigs while the rest of the market zags. That’s especially important if you’re bearish on the overall economy or are particularly sensitive to geopolitical risk.
Moreover, Bitcoin has certain characteristics that are similar to those of gold. It has a limited lifetime supply of just 21 million coins, so there is inherent scarcity, just as with 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 halving, the rate of creation for new bitcoins is cut by one-half. Thus, many investors view it as a form of “digital gold” and a potential hedge against inflation and economic uncertainty.
Mainstream acceptance
In January 2024, the crypto market experienced a watershed moment with the launch of the 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 just the first six months of this year, these new ETFs have seen inflows of more than $30 billion, showing just how much pent-up demand there was for this new product.
The launch of the new ETFs is important because they point to the growing mainstream acceptance of Bitcoin. As investors, both small and large, begin to allocate a portion of their portfolio to crypto, the leading digital currency should be widely held by more and more investors.
Already, some of the largest financial institutions on Wall Street have put their support behind these ETFs. That’s particularly important to note, given how bearish some of these institutions were about Bitcoin just a few years ago.
Can any crypto ever supplant Bitcoin?
Of course, it now has plenty of potential challengers, the most promising of which is Ethereum (CRYPTO: ETH). Ever since its launch in 2015, it has played second fiddle to Bitcoin, but some crypto analysts think it has the potential to surpass Bitcoin’s sector-leading market cap one day, given its much wider set of uses. Ethereum has delivered spectacular market returns over the past decade and is soon getting spot ETFs of its own.
Still, with a market cap of just under $420 billion, Ethereum remains considerably smaller than Bitcoin and would need to accelerate its growth rate to ever overtake it.
For now, then, Bitcoin continues to be the gold standard for investors. As long as you are comfortable taking on the risk and volatility of investing in cryptocurrency, Bitcoin remains the premier way to access this unique asset class.