Key Points
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Bitcoin has pulled back nearly 40% from its record high.
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It’s still a reliable hedge against expansionary monetary policies.
Bitcoin (CRYPTO: BTC), the world’s most valuable cryptocurrency, reached its record high of about $126,000 last October. But as of this writing, it trades at around $77,000. That pullback can be attributed to macro headwinds, high Treasury yields that drove investors away from cryptocurrencies and other speculative investments, and the Fed’s reluctance to cut rates. Profit takers at the top also exacerbated that selling pressure by triggering leveraged liquidations.
However, Bitcoin has still risen roughly 17,210% over the past ten years. It went through some wild year-to-year swings, but investors who were shaken out by those previous pullbacks left a lot of money on the table. Therefore, I believe investors who buy Bitcoin today — as the bulls look the other way — could still reap substantial gains toward an earlier retirement.
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A digital illustration of a Bitcoin on a screen.
Image source: Getty Images.
What sets Bitcoin apart from other cryptocurrencies?
Bitcoin is still mined using the energy-intensive proof-of-work (PoW) consensus mechanism. It has a maximum supply of 21 million tokens, and over 20 million of them have already been mined. The final Bitcoin will be mined in 2140.
Bitcoin was originally mined with standard CPUs and GPUs, but that difficulty increased every four years as the blockchain’s scheduled “halvings” cut its mining rewards in half. Today, it can only be mined profitably with powerful application-specific integrated circuit (ASIC) miners. That scarcity makes Bitcoin more comparable to gold than many other cryptocurrencies.
Why could Bitcoin generate big long-term gains?
As the first decentralized cryptocurrency, Bitcoin established a first-mover advantage in the cryptocurrency market. It’s also the most widely adopted among retail and institutional investors, and a growing number of countries are recognizing it as a commodity. El Salvador even started recognizing Bitcoin as legal tender in 2021.
Over the next few decades, three catalysts could drive Bitcoin’s price higher. First, expansionary monetary policies will likely exacerbate inflation and devalue fiat currencies. That pressure will drive investors toward safe-haven commodities like gold, which are historically resistant to inflation. Bitcoin’s reputation as “digital gold” could draw in more investors as that happens.
Second, institutional investors could allocate a larger share of their portfolios to Bitcoin, and more governments could adopt Bitcoin as legal tender. That widespread acceptance would support the broader usage of Bitcoin as a mainstream currency rather than an investment. Lastly, its scarcity will increase with every scheduled halving.
Bitcoin probably won’t replicate its massive gains from the past decade over the next ten years. Still, it could significantly boost your portfolio’s long-term returns and help you retire earlier.
Should you buy stock in Bitcoin right now?
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.