The crypto market has had a wild ride in recent years, with extreme volatility, regulatory uncertainty, and an unstable global economy. But despite these challenges, the crypto sector has shown remarkable resilience, and some digital currencies have continued to thrive. In particular, Bitcoin (BTC 0.40%), Ethereum (ETH -1.06%), and Coinbase Global (COIN 7.04%) have emerged as top long-term investment ideas in this sector, with the potential to offer market-stomping returns over the years ahead. Here's why these three assets are worth considering for your portfolio.
Bitcoin: The future of money?
The original cryptocurrency and still the largest in 2023 has been turning heads since its creation in 2009. Bitcoin maximalists like MicroStrategy founder and chairman Michael Saylor see it as the ultimate store of value, a digital gold that can serve as a hedge against inflation and a long-term investment for the future. But Bitcoin was also hit hard by scandals and crashes in 2022, leading some to question its suitability as either a currency or an investment.
Despite these challenges, Bitcoin has continued to attract increasing interest from investors and financial institutions alike. Its decentralized nature and strictly limited supply make it a unique asset that is not necessarily subject to traditional market forces. Moreover, this isn't the venerable cryptocurrency's first rodeo. Bitcoin has survived several brutal market crashes over the years, only to bounce back stronger each time.
In the most recent rebound -- the inflation-plus-interest-rates crisis of 2022 and 2023 -- Bitcoin has gained 67% year to date while the S&P 500 only increased by 7%. It's a long way back to the all-time peaks of November 2021, but the recent gains are a good start.
So Bitcoin may not be everyone's favorite place to store cash-like value over the long term, but it does provide a unique opportunity if you're willing to take on some risk in the pursuit of sustainable wealth. If you ask Michael Saylor, owning Bitcoin is the only responsible thing to do and fiat currencies like the U.S. dollar are bound to lose value against the leading crypto over time. I wouldn't go that far, but a reasonable serving of Bitcoin does look like a sensible ingredient in any long-term portfolio nowadays.
Ethereum: The rise of smart contracts and DeFi
Often described as the digital silver to Bitcoin's virtual gold, Ethereum is actually a very different kind of blockchain network that deserves investors' attention for a very different set of reasons. Analyzing these two crypto leaders isn't like comparing apples and oranges. If Bitcoin is the apple, Ethereum is more like the orchard manager that can put the digital fruit to good use.
The second-largest cryptocurrency by market cap has become a powerhouse in the crypto industry thanks to its versatile platform for smart contracts. Thanks to these contracts, Ethereum serves as a leading platform for newfangled ideas like decentralized applications and non-fungible tokens (NFTs). Ethereum's smart contract functionality has opened up a world of unheard-of possibilities for developers and entrepreneurs.
Several alternative smart contract systems have emerged after Ethereum, but the market-defining originator still enjoys the first-mover advantage. Ethereum's developer community is large, growing, and active. If you want to know how to set up and execute apps in a smart contract, your first "Hello world" example will probably run on the Ethereum network.
Despite its success, Ethereum is not immune to market volatility and the regulatory landscape for cryptocurrencies remains uncertain. But Ethereum's long-term potential as a platform for decentralized applications and a vehicle for financial innovation is hard to ignore. If you believe in the future of decentralized finance and smart contracts, then Ethereum is worth considering for the cryptocurrency portion of your own investment portfolio.
Coinbase Global: Making crypto ownership mainstream
Now, let's talk about Coinbase. This is the largest American cryptocurrency exchange (whether you measure them by market cap or trading volume) and a major global player, offering an easy-to-use platform for buying and selling digital currencies like Bitcoin and Ethereum. Coinbase's stock suffered an 86% price drop in 2022, taking the crypto sector's hardships on the chin.
However, Coinbase has made a strong recovery in 2023, up 89% year to date as of April 3. The company's revenue comes mainly from transaction fees and custody services, which should continue to grow as more investors join the crypto market.
Additionally, Coinbase is looking to expand its offerings beyond just trading. For example, it acquired a company called Bison Trails in 2021. The company provides blockchain infrastructure that other businesses can build products and services on. Moves like that one have positioned Coinbase to expand beyond the strict crypto-trading market and become a major player in the rapidly growing world of decentralized finance.
Coinbase isn't perfect, of course. The company is heavily reliant on the growth of the crypto market, and any negative regulatory or market news could hurt its bottom line. Additionally, there is competition in the cryptocurrency exchange space, with alternatives like Kraken and Robinhood Markets vying for market share.
Risks and volatility: Proceed with caution
In conclusion, Bitcoin, Ethereum, and Coinbase are all strong players in the cryptocurrency market and have the potential to deliver solid returns over the long term. In fact, I see them as the most robust and stable crypto names in the long run, excluding the literal stablecoins that aren't supposed to gain or lose value at all.
However, you should only invest money you can afford to lose if worse comes to worse, and diversify your investments across different asset classes. For example, most of my personal portfolio is invested in stocks and exchange-traded funds. Less than 10% of my long-term assets are tied up in cryptocurrencies. You do you, of course, but that's the crypto exposure I'm comfortable with so far. This portion will likely grow larger over time.
And I am doing my level best to give you valuable investing ideas. This is what I do, I'm pretty good at it, and as you can see in the disclosure below, I tend to follow my own advice. Still, I'm only human and nobody knows your financial needs better than you do. Therefore, as with any investment, you need to do your own research before putting that hard-earned cash to work in digital investment assets.
As investors navigate the blooming meadows of digital currencies, they must keep an eye out for the occasional stinky bouquet. You will see lots of volatility and many unguessable surprises as the crypto sector evolves. This market is still in its early stages, subject to a cacophony of risks and uncertainties.
But for those willing to buckle down and tackle the inevitable risks, Bitcoin, Ethereum, and Coinbase offer exciting opportunities for growth and innovation.
