The S&P 500 has not had a great 2022 so far, as the broad index is down 11% through the end of April. Soaring inflation, the Fed's plans to keep raising interest rates, and geopolitical turmoil have caused investors to adopt a risk-off approach. And we're seeing the same characteristics impact cryptocurrencies as well.
It shouldn't be a surprise that in times of economic uncertainty, like today, investors completely sour on the most speculative assets. But even though the cryptocurrency market has lost nearly 19% of its value this year, I think it still possesses a lucrative opportunity for patient and long-term investors.
Here's why Bitcoin (BTC +1.24%) is the one cryptocurrency I'd buy right now.
Image source: Getty Images.
Bitcoin is the first mover
Bitcoin was launched in 2009, making it the world's first cryptocurrency project. Designed to be a decentralized, global payments network, Bitcoin's price has skyrocketed over 3,000% over the past five years. And it now sports a market capitalization of about $730 billion, easily making it the world's most valuable cryptocurrency by a wide margin.
One of the defining traits of Bitcoin is that there will ever only be 21 million coins minted. This supply limit means that as demand rises, the price should as well. And it creates a sense of scarcity for Bitcoin, which can help to keep investors interested.
As the first mover in the crypto market, Bitcoin benefits from having a growing set of infrastructure, tools, and services supporting it. Companies like Coinbase, PayPal, and Robinhood Markets make it effortless to buy Bitcoin. And Block, led by founder Jack Dorsey, is attempting to advance Bitcoin and bring it to the mainstream with its Spiral and TBD segments. Even a large financial institution like Goldman Sachs is pushing for exchange-traded funds and other products for its affluent clientele to gain access to the top crypto.
Bitcoin's standing as the most-developed, longest-operating, and most widely recognized cryptocurrency makes it a worthy addition to a well-diversified portfolio.
Bitcoin has a bright future
Despite being down 19% so far this year, there are three budding use cases that support the argument that the world's most valuable cryptocurrency is a solid investment.
CRYPTO: BTC
Key Data Points
For starters, many proponents view Bitcoin as a digital gold. But compared to physical gold, Bitcoin is easier to store, can be used in transactions, and is divisible. And as more people use the cryptocurrency as a store of value, its price should rise.
Additionally, major businesses like Tesla and MicroStrategy have decided to use some of the cash on their balance sheets to buy and hold Bitcoin. With inflation continuing to eat away at the purchasing power of the dollar, I can see other companies following this trend.
And lastly, Bitcoin's ability to transcend borders with essentially zero fees and fast settlement make it a worthwhile tool in the global remittance market. The economies of developing countries like Mexico and India depend heavily on money sent back home from overseas. The issue, though, is that traditional money transmitting services charge hefty fees that are basically a tax on these nations' citizens. Bitcoin can solve this problem.
Compared to the stock market, cryptocurrencies are still incredibly risky and fraught with extreme volatility. However, it doesn't mean that investors should completely write off the asset class. I believe that allocating up to 2% of a well-diversified portfolio to Bitcoin can provide enough exposure to properly manage risk as well as capture the potential for massive upside over time.
