If you think about it, the "ultimate" cryptocurrency would deliver market-beating returns with remarkable consistency, act as a long-term store of value, be widely accepted globally, and have the approval of government regulators. And it would be so easy to buy and sell that anyone could do it, even without sophisticated knowledge of how cryptocurrencies work.
That's a lot to ask, of course, but the one cryptocurrency that comes close to fulfilling all these conditions is Bitcoin (BTC +1.33%). As we'll see below, Bitcoin might just have the ultimate risk-reward profile of any cryptocurrency you could buy today.
Bitcoin's track record of delivering superior returns
Let's start with Bitcoin's eye-popping returns. Since 2013, Bitcoin is up a remarkable 40,000%. In the decade from 2011 to 2021, Bitcoin was the best-performing asset in the world, and it wasn't even close. Bitcoin delivered nearly 10x the returns of its closest competitor, the tech-heavy Nasdaq 100.
CRYPTO: BTC
Key Data Points
While Bitcoin admittedly had a disastrous 2022 -- losing nearly 65% of its value -- it returned with a vengeance in 2023 when it was once again the world's best-performing asset class. And once again, it wasn't even close, with Bitcoin up more than 150% for the year. While past performance is certainly no guarantee of future returns, even the biggest skeptic must admit that Bitcoin has put together a remarkable track record for a decade now.
Bitcoin as a store of value
In terms of its overall risk-reward profile, Bitcoin continues to act as a long-term store of value for investors. In a nutshell, that means Bitcoin will flourish in both inflationary and deflationary economic environments. It also means that in times of peak economic uncertainty, investors are likely to view Bitcoin as a "safe-haven" asset. We saw that in early 2023, when a string of regional bank failures led to investors moving their money into Bitcoin.
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Throughout its history, Bitcoin has often been referred to as "digital gold," and for good reason. The total lifetime supply of Bitcoin is capped at 21 million coins. This creates a real scarcity effect in the marketplace, especially since 19.6 million coins are already in circulation.
Conceptually, it's a bit like thinking about the world's physical gold supply: At some point, the world's gold miners will run out of gold to mine. The same is true with Bitcoin: There's no magical central bank to create more Bitcoin once we reach 21 million coins.
Moreover, the rate at which new Bitcoin can be produced is carefully controlled by an algorithm. Since the rate of new supply drops by one-half every four years, this ensures that Bitcoin actually becomes more deflationary over time. That's exactly what you want to see as an investor if you're looking for a hedge against inflation.
How do you invest your $1,000?
So, what's the best way to invest your $1,000 in Bitcoin? Until January of this year, the answer would have been to go to a major cryptocurrency exchange, sign up for an account, and buy Bitcoin for your account. While $1,000 is not enough to buy a whole Bitcoin (worth $40,000 at today's prices), you could buy a fractional Bitcoin. In your account, this would show up as .025 BTC.
However, on Jan. 10, the Securities and Exchange Commission finally approved nearly a dozen new spot Bitcoin ETFs. These enable you to buy Bitcoin via a traditional ETF structure. Right now, the two ETFs that have been most popular with investors are the iShares Bitcoin Trust (IBIT +0.91%) and the Fidelity Wise Origin Bitcoin Fund (FBTC +0.89%).
They are popular because they have near-zero expense ratios (0.25%) and are backed by two investment world titans -- BlackRock (BLK +0.00%) and Fidelity Investments. For $1,000, you can pick up approximately 50 shares of the BlackRock ETF or approximately 30 shares of the Fidelity ETF.
Bitcoin for the long haul
As outlined above, Bitcoin offers the optimal blend of risk and return of any major cryptocurrency. While Bitcoin is, by no means, a "safe" asset, it does possess certain inherent properties that make it much safer than rival cryptocurrencies. It also has a strong track record of delivering superior returns for over a decade. For that reason, I'm going to continue to buy and hold Bitcoin for the long haul. I can't think of a better way to invest $1,000 in crypto right now.
