Bitcoin (BTC +1.40%) has been trading sideways for much of the past several months. It did rise 48% through the first two months of 2024 and hit a fresh all-time high in March. But it has had trouble breaking out to start the new bull run that its supporters are waiting for.
Should you buy the world's top cryptocurrency while it trades for less than $70,000? Here are three reasons I believe that's a smart idea.
Favorable backdrop
Investors don't have to look far to find reasons to be optimistic about Bitcoin, at least in the short term. The Federal Reserve just cut rates for the first time in 4 1/2 years, which could be the start of a more accommodative monetary policy. Lower interest rates generally benefit risky assets, as they incentivize investors to move money from safer assets into those that may earn higher returns.
The introduction of spot Bitcoin exchange-traded funds, which so far have been very successful, increases accessibility and convenience for investors looking to gain exposure to the digital asset. Add to this the possibility of a more favorable regulatory environment no matter who wins the White House, and Bitcoin becomes more desirable for the average person.
CRYPTO: BTC
Key Data Points
Fixed supply
If you look at Bitcoin in a vacuum, with no regard for broader macro or market forces, it's hard not to come away impressed. When Bitcoin was created, 15 years ago, it was the first time that two parties could electronically send money to each other without the use of an intermediary like a bank. That alone was a huge breakthrough.
But perhaps Bitcoin's single defining characteristic is its fixed supply cap. There will only ever be a maximum of 21 million coins in circulation (about 19.8 million now circulate).
It's hard to overstate just how important that supply cap is. Our current monetary system can be characterized by ever-increasing amounts of debt and fiat currency supply. This simply means that the dollars you own become less valuable as time passes. There is no end in sight to this.
Bitcoin also has a lower supply growth rate than gold, one of the rarest and most valuable metals on Earth. Bitcoin is absolutely finite. Its cap isn't likely to change, unless users want to undermine the value of the entire network. Demand may go up, but that doesn't mean supply will rise, too. The supply of gold, on the other hand, can increase in the face of higher demand.
An asset with a fixed supply cap becomes incredibly compelling when viewed in this light. This is doubly true if you believe the world is only going to become more digital over time.
Outstanding track record
Although it's best not to assume that past results can guarantee future returns, I believe that investors should still look at how an asset has performed historically. And there might be no better financial asset to have owned in the recent past than Bitcoin. According to BlackRock, Bitcoin performed better than every major asset class in seven out of 10 years from the start of 2014 through 2023. And so far this year, Bitcoin is up about 60%, outpacing the broader S&P 500 by a wide margin.
Of course, it's reasonable to expect gains to come down in the future. But it's hard to ignore this unbelievable track record. Yes, there will still be volatility along the way. Even so, Bitcoin looks like a smart investment to make while it trades below $70,000.
