Very few assets, if any, have outperformed Bitcoin (BTC +0.13%) in the past decade. Now, as this top cryptocurrency sports a market cap of $1.3 trillion and is in the mainstream financial news constantly, investors have no choice but to pay attention.
But you might be wondering if Bitcoin is still worth buying, even as it sits close to its all-time high price. Here are three reasons why I still believe it's a smart decision to add this digital asset to your portfolio.
Fixed supply
Perhaps Bitcoin's most attractive characteristic is its fixed supply cap. There will only ever be 21 million coins in circulation, a limit that is written in the software's code. And with ongoing halvings, the inflation rate continues to decrease.
This fixed supply contrasts greatly with many other asset classes out there whose supply can rise. Companies can raise more equity and issue more bonds. Gold miners can invest aggressively into exploring previously uneconomical areas if the price of the metal goes up enough. In other words, supply can change to meet demand.
This isn't the case with Bitcoin. Unless more than half of the blockchain nodes voted to change the supply cap -- which is unlikely, given that it would basically undermine the value of the entire network -- the situation will remain the same.
Bitcoin's strongest supporters view it as a direct competitor to the current monetary system. Central banks have historically increased the supply of fiat currencies while lowering purchasing power. Bitcoin is a solution to this problem.
CRYPTO: BTC
Key Data Points
Stamp of approval
Another reason to buy Bitcoin is related to a development that happened this year. I'm talking about the long-awaited approval of spot ETF products. With these investment vehicles now on the market, investors can gain price exposure to Bitcoin in a convenient way. There's no need to open a crypto wallet or manage custody. It can be purchased directly via major brokerage operators.
This is especially useful for institutions that wanted access to Bitcoin in a safe way. The approval of these ETFs can be viewed as a regulatory stamp of approval by the Securities and Exchange Commission. The hope is that more capital flows to the asset.
So far, there has been $12.1 billion in inflows to the ETFs. And since the approval date on Jan. 11, Bitcoin's price has soared 43%, a positive indication of heightened demand.
Expanding infrastructure
Bitcoin is about 15 years old. That's tiny in the grand scheme of things, as there are businesses that have been around for a century or more. So, most people probably view the digital asset as a very novel and risky asset that will eventually die off, calling it a Ponzi scheme or fake internet money.
However, we can't ignore the expanding list of financial products and services involved in the Bitcoin ecosystem. The previously mentioned Bitcoin ETFs fall into this category. Numerous start-ups are working on boosting Bitcoin's adoption over the long term by focusing on energy, gaming, and artificial intelligence.
There is also a well-known company, fintech enterprise Block, that's working on ways to boost Bitcoin's utility. Whether that means facilitating payment mechanisms or simply making it seamless for people to buy, hold, or sell Bitcoin, the crypto is slowly getting further integrated into the current financial system.
Bitcoin could be compared to the early days of the internet. No one knew what the effects would be over time, but with the help of various platforms and applications built on top, adoption expanded massively. It's hard to imagine modern life without it nowadays. And Bitcoin could be the next big game-changer.
Investors looking to buy Bitcoin should consider its fixed supply, regulatory stamp of approval, and expanding infrastructure.
