The term "ultimate cryptocurrency" can hold different meanings, depending on your investment goals, your risk tolerance, and how much you have to invest. But for me, the ultimate cryptocurrency is one that combines explosive upside potential with a certain degree of downside protection. I'm also looking for a cryptocurrency with growing mainstream acceptance on both Wall Street and Main Street, just to give me extra peace of mind.
No surprises here, but Bitcoin (BTC -0.20%) comes closest to meeting this definition of the ultimate cryptocurrency. If you are thinking about putting $1,000 to work in the crypto market, Bitcoin could be a good starting point. Here's why.
Let's cut to the chase here -- the ultimate cryptocurrency should be one with the potential to grow a relatively small investment into an extraordinarily large nest egg sometime within the next decade. And I can't think of a better cryptocurrency than Bitcoin to make that happen. While past performance is certainly no guarantee of future performance, it's hard to ignore Bitcoin's historical track record.
Over the decade from 2011 to 2021, Bitcoin was the best-performing asset in the world, and it wasn't even close. During that time period, Bitcoin delivered annualized returns of 230%. The next best performing cohort was the Nasdaq 100 (technology stocks) which delivered 20% per year. And Bitcoin's history of outperformance continued in 2023, when it skyrocketed by 155%. In 2024, Bitcoin is already up 58%, on pace for another blockbuster year.
With the caveat that Bitcoin is unlikely to replicate this type of extraordinary performance over the next decade, there could nonetheless be plenty more upside ahead. Cathie Wood of Ark Invest, for example, thinks that the price of Bitcoin could soar to $1.48 million by 2030. And that might be the low end of expectations. Michael Saylor, the founder and chairman of MicroStrategy, has suggested that the true value of Bitcoin might be $10 million or higher.
You would think that an investment with so much upside potential also comes with an incredible amount of risk. After all, there is no such thing as a free lunch on Wall Street, right? Admittedly, Bitcoin does come with a lot of volatility, meaning price swings can be quite dramatic. So you would not be wrong to view this as the "price" you pay for Bitcoin's performance.
But Bitcoin has a unique risk-reward profile. Consider, for example, that some investors consider Bitcoin to be the single best hedge against inflation, even better than gold. Moreover, a growing number of portfolio managers consider Bitcoin to be a "safe haven" asset when things turn south in the broader market or when geopolitical risk rears its ugly head on the world stage.
There are a number of reasons for this. One is Bitcoin's historical lack of correlation with other asset classes. Another is the Bitcoin algorithm, which carefully controls the rate of creation of new Bitcoin. The ultimate goal of this algorithm is to preserve the long-term value of Bitcoin by making it inflation-resistant. Every four years, for example, the rate of new Bitcoin creation drops by one-half, in an event known as halving.
There's one more area where Bitcoin really shines: its growing acceptance on both Wall Street and Main Street. The single best example of this is the recent introduction of spot Bitcoin exchange-traded funds (ETFs) in January. There are now nearly a dozen new spot Bitcoin ETFs, making Bitcoin as easy to buy as your favorite tech stock. Already, $30 billion has flowed into these new ETFs in less than six months.
But you don't need to limit yourself to these ETFs. You could, for example, choose to buy Bitcoin via a cryptocurrency exchange such as Coinbase Global. Until January, buying Bitcoin via an exchange was one of the most popular options for crypto investors.
There are other options as well. Since Bitcoin is the most popular cryptocurrency to own, it's available to trade on platforms such as PayPal and Robinhood Markets. Heck, even my local supermarket has a Bitcoin ATM where you can exchange fiat currency (i.e., dollars) for Bitcoin.
As you might have guessed, I'm very bullish on Bitcoin's long-term outlook. But I also recognize that a crypto portfolio that is 100% invested in Bitcoin is too risky. You shouldn't put all your eggs in the same basket. Thus, definitely take portfolio diversification into account before plunking down $1,000 on Bitcoin.
That being said, Bitcoin remains the ultimate cryptocurrency to buy right now. If you are looking to build future wealth, Bitcoin should be at the top of your list of potential investment options.
