Even after falling nearly 40% from its recent high, Bitcoin (BTC 1.06%) has been a fantastic investment to own in recent years. Since January 2017, the world's top cryptocurrency has surged more than 4,500% and now sports a total value of about $800 billion. During the same time, the S&P 500 increased by 103%.
If you've been on the sidelines, you might be wondering if it's too late to get in on this burgeoning asset class. I don't think it is, because this technology is still in the very early stages and has a long development runway ahead.
Here are three reasons why it might be a good idea to buy Bitcoin in 2022.
Image source: Getty Images.
1. Continued institutional adoption
Even if it never makes progress toward becoming a medium of exchange, Bitcoin has already established itself as a meaningful store of value. But its initial promise of becoming a "digital gold" is still a long way off. The total value of the world's gold is roughly $9 trillion, meaning Bitcoin can rise 10-fold and still be worth less than the precious metal.
Allocating a tiny portion of a portfolio to Bitcoin is appealing for individual and institutional investors. Bitcoin isn't strongly correlated to other financial assets, and this detached market position can provide diversification benefits. And there are already many Bitcoin-focused financial products out there, making it easy to gain portfolio exposure for those that don't feel comfortable directly owning the cryptocurrency.
ARK Invest's Cathie Wood believes that if institutional portfolios held 5% of their assets in Bitcoin, the crypto's price would be $500,000 per coin. I'm usually not a big believer in her wild forecasts, but I don't think this one is crazy. Of course, it could take many years to get to this point, but the potential to become a widely accepted, no-brainer portfolio addition is certainly there.
2. Real-world use cases
Besides being viewed today more as a legitimate store of value, as I've just discussed, Bitcoin has the potential to be a medium of exchange in real-world transactions. Sure, volatility is still elevated, and this is why many Bitcoin naysayers think it will never have much in the way of utility. But its utility in less-developed countries is obvious.
According to Statista, India was the top recipient of remittances in 2020, with $83 billion being sent back to the country from overseas workers. Data from the World Bank shows that the average fee for sending money to India was 5.2% for a $200 transaction. And the smaller the dollar figure is, the higher the percentage fee. This scenario just doesn't make much economic sense.
Bitcoin provides a viable solution. Because the digital currency can traverse international borders at almost no cost, as much as $4.3 billion could move from money-transfer companies and into the pockets of Indian citizens. The immediate economic impact can be life-changing for these people. Of course, getting a smartphone in everyone's hand, with access to fast internet, is definitely needed. But you get the idea of how Bitcoin might displace the high-priced financial intermediaries that are essentially a tax on the people of poorer countries.
3. Growing infrastructure of products and services
The ability to own and transact in Bitcoin wouldn't be possible without the necessary technological infrastructure. For example, companies like Block (formerly Square) and Robinhood make it easy to buy and sell Bitcoin. Coinbase, with its Visa debit card, allows customers to spend cryptocurrency in ordinary stores and earn cryptocurrency rewards. And in March 2021, PayPal introduced a "Checkout with Crypto" feature for its vast payments network of more than 400 million active accounts.
Creating seamless on-ramps onto the Bitcoin network is needed to achieve greater adoption. Jack Dorsey, founder and chief executive officer of Block, is dedicating his life's work to advancing Bitcoin. Changing his company's name from Square to Block hints at a future focus on blockchain. TBD and Spiral, are the lesser-known crypto-focused segments of Block. The first aims to build a decentralized exchange to convert fiat currency to Bitcoin, while the latter is working on developer kits to improve Bitcoin wallet functionality.
Bitcoin has been one of the best financial assets to own over the past several years, so you might think that you're late to the party. But think again. This top cryptocurrency still has a long way to go. For a well-diversified portfolio, it could still make for a nice addition in 2022.
