In the past decade, the S&P 500 and the Nasdaq Composite index have risen 166% and 270%, respectively. Those are solid gains, to be fair, but they don't hold a candle to the world's oldest and most valuable cryptocurrency.
Bitcoin's (BTC 1.58%) value has skyrocketed 4,830% in the past 10 years, translating to an annualized return of 74% per year. This means that a relatively small $4,000 investment 10 years ago would've made you a millionaire today.
Let's take a closer look at how Bitcoin became one of the best financial assets to have owned, as well as what's in store.
Becoming a legitimate financial asset
After the first transaction was processed in 2009, Bitcoin was just an interesting niche computer program that software developers were drawn to. This "internet money," which built upon previous technological breakthroughs, allowed two people anywhere in the world to instantly transfer value to each other without the need for an intermediary. This wasn't possible before.
What's interesting about Bitcoin's rise was that it was first mainly driven by retail adoption, which isn't surprising, because its tiny early market value didn't provide the liquidity necessary for larger pools of capital. This is different from other financial assets, which usually start with institutional interest, with those who are closer to the actual market- and deal-making, like in equity markets or real estate, only reaching the average investor as development progresses.
After nearly 15 years in existence, Bitcoin is slowly becoming a legitimate financial asset, if it isn't there already. Its current market cap of more than $500 billion is similar to major corporations like Visa and Eli Lilly. There are lots of businesses building financial infrastructure and tools to support Bitcoin and make it easier to access. It has the attention of regulatory agencies and politicians. And huge asset managers want in on the action with recent applications to create spot Bitcoin exchange-traded funds (ETFs).
It's worth pointing out that the path of Bitcoin's monster return certainly hasn't been a smooth ride. That's because like other cryptocurrencies, it's extremely volatile. Bitcoin has seen its price crash by 30% or more numerous times. The volatility has decreased as the asset has gotten more valuable, but it still trades like a growth tech stock, something investors just have to deal with if they want to own it.
Where's Bitcoin headed?
It's probably true that the next 10 years likely won't result in the same gains that Bitcoin registered in the past decade. If it did generate an annualized return of 74% between now and August 2033, Bitcoin's market cap would total a whopping $125 trillion, with the price of a single coin being greater than $6 million. While the strongest believers would be happy with this outcome, I think it's best to temper expectations.
But that doesn't mean Bitcoin makes for a poor investment today. I believe it can still beat the stock market over the long term. As I noted above, there's much greater institutional interest. With higher demand coming from huge amounts of capital, coupled with Bitcoin's fixed supply cap, the price is poised to rise. And I think that regulatory clarity will prove to be a positive factor because it will bring in investors who might've been hesitant to own Bitcoin.
The most realistic outcome I see playing out is that Bitcoin simply becomes a more popular store of value among not only individual and institutional investors, but also corporations and even governments. My confidence stems from the fact that in its entire existence, Bitcoin has never been hacked, not to mention that it's weathered multiple price drawdowns only to come roaring back. As a result, I don't see it going away anytime soon. In fact, I'd be surprised if its value isn't much higher 10 years from now.
