Of all the cryptocurrencies available today, one stands out above the rest. Besides being the original and best-known cryptocurrency, Bitcoin (BTC 0.08%) is also particularly secure and decentralized, compared to other cryptocurrencies. Here are three more reasons why it should be part of every crypto investor’s portfolio.
Bitcoin is the oldest cryptocurrency
Neil Patel: Launched to the public in January 2009, Bitcoin is the oldest crypto on the market. Its introduction as an innovative way for two unrelated parties to exchange value with just an internet connection and no central authority between them was revolutionary. Despite the extreme volatility that many investors know all too well, Bitcoin has still produced a remarkable return of almost 700% over the past five years, easily crushing the S&P500during the same period.
It may be the oldest cryptocurrency, but that doesn’t necessarily make it a great investment. Ethereum (ETH 3.00%)the second oldest and most valuable crypto in the world, with a market capitalization of $196 billion at the time of this writing, built on what bitcoin lacked by introducing smart contracts to the mixture.
Smart contracts are software that automatically executes when two unrelated parties meet the requirements of a particular contract. Ethereum promises an unlimited number of decentralized applications, which Bitcoin does not have the capacity for. Therefore, Ethereum could also be a profitable investment.
Nonetheless, Bitcoin remains the undisputed leader in the space, accounting for around 41% of the entire cryptocurrency market (as of August 4). As such, it is usually the first exposure to the crypto market for individual and institutional investors. Additionally, Bitcoin’s long history of mining has prompted the development of a range of financial tools, such as exchange-traded funds and Bitcoin-specific custodial services, that facilitate buying, selling, and trading. asset storage. This only adds to its position as a legitimate financial asset.
The Lindy effect tells us that the future life expectancy of a new technology or idea is proportional to its current age. Therefore, the longer Bitcoin remains alive, active, and attractive to investors, the less likely it is to die and fail. And that’s why he deserves a place in the wallets.
Bitcoin is rare
Michael Byrne: Another reason why every investor should have at least a few Bitcoins in their wallet is the simple but important fact that there will always be a finite amount of Bitcoins. The total supply is capped at just 21 million Bitcoins.
In a world where governments and central banks can print more money at any time, this inherent inelasticity is an attractive aspect. This capped supply and the global nature of the network makes Bitcoin a viable option for people around the world who want a safety valve against declining purchasing power in their own currency. Unlike the dollar, euro or Turkish lira, no one can decide to print another million Bitcoins to ease monetary conditions.
The price of Bitcoin, like many commodities, is ultimately determined by supply and demand, and Bitcoin becomes increasingly difficult to obtain over time. Over time, mining new Bitcoins will become increasingly difficult, due to a process known as the halving, so less will be created in the future. At the start of 2022, around 19 million Bitcoins had already been mined, so there are only 2 million left, with the last Bitcoin to be mined in 2140.
This contrasts sharply with the elastic nature of fiat currencies. The United States printed more currency to support the economy and provide citizens with direct stimulus payments during the COVID-19 pandemic, which ultimately led to inflation and reduced purchasing power for every existing dollar. Other world governments have done the same.
Bitcoin is a global network, and its potential as a store of value is even more attractive in countries like Turkey, where inflation is rampant and the purchasing power of the lira has declined markedly. In 2021, Morgan Stanley’s (MRS 0.90%) Head of Emerging Markets and Chief Global Strategist Ruchir Sharma observed this dichotomy, noting that:
Led by the Fed, all the major central banks printed money madly to keep economies afloat…undermining confidence in all national currencies. Twenty percent of all dollars in circulation were printed in 2020, and this frenzy has significantly boosted the appeal of Bitcoin, which was designed with a gradual process of mining new coins and a limited supply.
I don’t know if the Bitcoin price will go up or down tomorrow or even a year from now, but I feel good about owning at least a small portion of this finite asset as a hedge against future increases in the supply of other global currencies. .
Bitcoin is the leader in crypto
RJ Fulton: Before the crypto asset class became as diverse as it is today, people who wanted to invest in cryptocurrency had only one option: Bitcoin. For this reason, Bitcoin’s market capitalization dominates the proportion of value that makes up the entire cryptocurrency asset class.
Due to this overwhelming value of Bitcoin, it performs a role similar to cryptocurrency as S&P500 serves the stock market: both act as indicators of overall health and trends. The only difference is that Bitcoin does this for crypto.
Until 2017, Bitcoin accounted for over 90% of all cryptocurrency value. Today, this number is around 40%, but it reached 70% in December 2020. Over the past decade, the proportion of money in Bitcoin, compared to all other cryptocurrencies, has decreased – but it still influences crypto trends. , even if its market share is declining.
To measure this, we can look at correlation values to get a better idea of how other cryptocurrencies are trading against Bitcoin. Values closer to one have a positive correlation with Bitcoin, which means that cryptocurrencies follow similar price trends. A value close to zero indicates that there is no correlation.
Ethereum, the second most valuable cryptocurrency by market capitalization, has a correlation value with Bitcoin above 0.8 over the past year – a very strong correlation. The third most valuable cryptocurrency by market capitalization (which is not a stablecoin) is Binance Coin. It has a strong correlation value of around 0.75 with Bitcoin. For all meme room fans, DogecoinBitcoin’s correlation with Bitcoin hovers around a strong 0.68.
Even though cryptocurrencies are known to be complex, investing in them can be simple. Although other cryptocurrencies offer attractive advantages, in the end they still trade the same as the globally sourced cryptocurrency over the long term. Don’t complicate it too much – Bitcoin offers the safe and proven route.