Bitcoin (BTC 0.31%) has received a lot of attention lately, mainly due to the approval by the Securities and Exchange Commission and the subsequent launch by major asset managers of spot exchange-traded funds (ETFs). This, the upcoming halving, and a favorable market environment have helped drive the asset up more than fourfold since the start of 2023 (as of April 5).
Zooming out, it's a similar story. In the past five years, there aren't many assets that have outperformed Bitcoin's 1,210% gain (as of April 6). But where will the world's top cryptocurrency be five years from now?
Becoming a legitimate financial asset
Since the Bitcoin whitepaper came out in late 2008, this crypto has been around for over 15 years. And despite its ups and downs, it is now becoming a legitimate financial asset.
Even before the approval of spot ETFs, there was growing interest from large investors, like Ark Invest, corporations, like Block and MicroStrategy, and countries, like El Salvador, in owning this asset.
However, now that these ETFs have come to market, there's somewhat of a regulatory stamp of approval that was given to Bitcoin. That's definitely an encouraging development. And based on the massive amounts of capital inflows in these ETFs thus far, it's clear just how much more investor interest there is.
Looking ahead, it's reasonable to expect this trend to continue, particularly as more people learn about Bitcoin. There will also be an ever-expanding list of various financial services infrastructure being built out to support Bitcoin's adoption, whether it's custody solutions, payments systems, digital wallets, and new solutions we can't quite think of yet.
CRYPTO: BTC
Key Data Points
Bitcoin's killer use case
Bitcoin's performance in the past four years has been nothing short of impressive. It has soared 844%. This is spectacular given that it was during a period of turmoil, with the coronavirus pandemic, inflationary pressures, higher interest rates, and ongoing recessionary fears. Gold and U.S. Treasuries, viewed as the safest assets to own, have put up poor returns in the last four years, which is disappointing considering that this is when they should have done well.
I think this points to Bitcoin's killer use case. It's becoming viewed more and more as a superior store of value and investment opportunity for people looking to own an asset that has a fixed supply cap. In other words, I believe investors are warming up to the idea that Bitcoin can seriously raise their purchasing power over long periods of time, just like what it has done in the past.
The question remains about Bitcoin being used more as a payment mechanism. I think its ultimate adoption as a medium of exchange is way too uncertain right now. Therefore, I believe its utility comes from being a more popular store of value, which we are seeing play out.
Rewarding investors
To be clear, I'm not expecting Bitcoin to put up the same returns that it has historically. Those monster early gains are likely no longer feasible, as this is now an asset with a market cap of $1.3 trillion.
But I'm fairly confident that Bitcoin will continue to reward its owners. In fact, in eight of the last 11 years, it has put up stronger annual returns than any other asset class. Even with Bitcoin at all-time highs, it has massive upside potential over the next decade and beyond. There is still so much capital that could flow to Bitcoin over time, pushing up its price, while supply stays controlled.
In five years' time, I would be shocked if Bitcoin hasn't at least doubled in price. I expect its return to be much higher than that, though.
