Bitcoin (BTC 2.42%) has had a dramatic year so far. After rising rapidly at the beginning of the year, the cryptocurrency has tumbled 20% during the past six months.
Bitcoin enthusiasts haven't been deterred by the recent drop though, and their optimism is rooted in the fact that over the past five years, Bitcoin's value has soared 460% -- compared to the S&P 500's 99% increase.
But is Bitcoin worth investing in now that it's worth less than $60,000? Let's take a closer look at why this crypto could move higher.
Bitcoin's unique proposition
The one thing that continues to draw investors to Bitcoin is that only a limited amount of coins can be mined, making the cryptocurrency inherently scarce. There are about 19.8 million Bitcoins right now, equal to about 94% of the total eventual supply.
CRYPTO: BTC
Key Data Points
It gets continually more difficult to mine new Bitcoin over time, and the final amount of 21 million coins won't be reached until about 2140.
The limited supply of Bitcoins is why the crypto is appealing to so many people, especially when used as a hedge against the dollar. We're all well aware of the negative effect inflation has on the value of money, and the devaluation gets worse the more the U.S. government prints money.
One way to protect against your money being devalued is to invest in something that can't be devalued due to inflation or increasing supply. While Bitcoin can certainly decrease in value and has fallen very dramatically at times, so far, it continues to become more valuable over time.
Bitcoin is less of a fringe investment than ever
One of the good things about investing in Bitcoin now is that it's become much more of a mainstream investment. For example, it's easy to buy and sell Bitcoin through apps such as Robinhood Markets and PayPal.
Even well-established financial companies have adopted a more open approach to Bitcoin in the past few years. Visa, for example, lets customers use cards linked to their crypto wallets for transactions.
There are also ways to invest in Bitcoin without owning the cryptocurrency outright. Earlier this year, the first Bitcoin exchange-traded funds (ETFs) launched, including the popular iShares Bitcoin Trust ETF, which lets people invest in an ETF that follows Bitcoin's price movements.
Image source: Getty Images.
This means it's just as easy to buy a Bitcoin ETF in your brokerage account as it is to buy other stocks or index funds, and you can sell it just as easily. This has made investing in Bitcoin easier than ever and could eventually entice more people to view Bitcoin as a viable investment.
Should you buy Bitcoin now?
If you have some extra cash in your portfolio, allocating a small portion of it to Bitcoin is probably a good long-term idea. Its increasing popularity among investors, its inherently limited supply that drives up its value, and its increasing acceptance among governments and financial institutions make a Bitcoin investment a potentially smart move.
It's worth mentioning that Bitcoin is likely to experience larger price swings than most stocks. That's why having no more than 5% to 10% of your portfolio in cryptocurrencies is generally a good idea.
With Bitcoin falling during the past six months, now could be the right time to dip your toe in the crypto water. Just be sure you're OK with some of the volatility it might bring to your portfolio.
