Cryptocurrencies have been crushed due to the recent market turmoil caused by a sell-off of riskier assets. After peaking at nearly $3 trillion last November, the entire industry has shed roughly 50% of its value as of May 10, scaring investors away and keeping them on the sidelines.
However, for those with a long-term mindset, now might be a fantastic opportunity to buy digital assets. When everyone around you is pessimistic and in a state of panic, you can purchase crypto at a meaningful discount to recent highs.
Bitcoin has the first-mover advantage
According to CoinMarketCap.com, there are more than 19,000 different cryptocurrencies. And Bitcoin's advantage over all of them is that it has been around for the longest amount of time. Having been founded in 2009 on the heels of the Great Recession, Bitcoin is just two years younger than the first iPhone.
I believe that this longevity matters, particularly with a quickly evolving and nascent asset class like cryptocurrency. In my opinion, the longer that Bitcoin remains relevant with each passing year, the lower the chances are that it ever goes away.
Demonstrating its resiliency, Bitcoin has had multiple drawdowns of 50% or more in its past, only to bounce back stronger than before each time. And even with it currently being down 46% from its all-time high, it still doesn't look like it's going away.
Furthermore, Bitcoin's broad recognition has made it a household name -- 86% of Americans have heard about cryptocurrencies. For people new to crypto, Bitcoin is most likely their first exposure to the asset class.
It's hard for me to envision a future where cryptocurrencies become mainstream, but Bitcoin isn't a part of that. While a popular blockchain like Ethereum, with its smart-contract functionality and budding ecosystem of decentralized applications, might be more exciting because of potential use cases, I think Bitcoin's ability to fundamentally change how people interact with money is a profound development.
As a result, I think it is probably the safest and least-speculative crypto for investors. Remember: This is a long-term game.
Bitcoin is becoming a legitimate financial asset
Besides its age, Bitcoin is also a top crypto to buy and hold forever because of its growing legitimacy as a true financial asset. There is an expanding infrastructure of products and services that support Bitcoin. Goldman Sachs has a dedicated Bitcoin trading desk, and there is a growing list of Bitcoin-based exchange-traded funds. Businesses like Coinbase Global and PayPal Holdings make it easy not only to buy and hold Bitcoin, but also to spend it.
Investors are increasingly beginning to view Bitcoin as a store of value. Despite its gut-wrenching volatility, Bitcoin's 1,670% return over the past five years far outpaces the 18% rise in the Consumer Price Index during the same time. On a short-term basis, Bitcoin might not be a useful inflation hedge. But over an extended period of time, it has proved it can significantly boost purchasing power, which is essentially the objective of all investing.
Countries like El Salvador and the Central African Republic have made Bitcoin legal tender within their borders, a step I think that more lower-income, developing nations will pursue. Whether citizens actually transact with Bitcoin in their daily lives is overshadowed by the fact that these countries are attempting to get ahead of the innovation curve.
Bitcoin belongs in your portfolio
With the government's unprecedented monetary stimulus efforts over the past couple of years, in addition to burgeoning public debt levels, owning Bitcoin looks like an escape from the traditional financial system. This is my perspective. The fact that it can't be controlled by any single entity, unlike the U.S. dollar, makes it appealing. With a cap of 21 million coins, demand for Bitcoin will likely rise in the future -- and so will its price.
Regardless of what so-called experts say, it's impossible to put a price target on Bitcoin. There are just too many unknowns, like the regulatory environment and mainstream adoption trends. But I think it's prudent to allocate 1% to 2% of your portfolio to Bitcoin. The downside is limited with that small amount, but the upside is massive. That's an attractive asymmetric bet worth taking.