Bitcoin (BTC -0.28%) has hit record levels in May as the bullishness around the top cryptocurrency remains strong. After sliding earlier this year, during the past three months, it has rallied by about 30%. With a market cap of more than $2.1 trillion (as of May 29), it is far and away the most valuable digital currency. Ethereum, with a market cap of around $320 billion, is a distant second place.
The original crypto remains the default option for investors who want exposure to cryptocurrency. Some investors view it as a form of digital gold while others like it for its scarcity, or simply its overall popularity and its rising adoption.
But while Bitcoin has soared in value, its market cap has also risen beyond those of many of the best blue chip companies. Is that a sign that it is overvalued and approaching a peak, or is there still room for the cryptocurrency to go even higher?
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Bitcoin has been a better investment than tech stocks
Over the past five years, Bitcoin has generated far better returns for investors than the broad stock market. During that time frame, it has risen by more than 1,000%. The S&P 500, by comparison, has increased in value by only 91%. Even the Technology Select Sector SPDR Fund, which gives investors focused exposure to tech stocks, is only up by 134%.
The digital currency now has a market cap that equals or exceeds some of the world's most dominant companies:
- Amazon: $2.1 trillion
- Alphabet: $2.1 trillion
- Meta Platforms: $1.6 trillion
Currently, the most valuable company in the world is Microsoft, with a market cap of $3.4 trillion. For Bitcoin to reach that level, it would need to rise by about 57% to roughly $168,000 per coin. Based on some analysts' forecasts, it will not only hit that level, but will dwarf it.
How high could Bitcoin go?
If your opinion is that in the long view, Bitcoin will change the world and revolutionize how payments are made, then your expectations could be sky high. Cathie Wood's firm Ark Invest projects that Bitcoin could hit $1.5 million by 2030, which would be a gain of nearly 1,300% from where it is today.
MicroStrategy Executive Chairman Michael Saylor is also incredibly optimistic about Bitcoin and believes that by 2045, the digital currency's price could top $13 million.
Investors, however, should remember that those two are among the most bullish Bitcoin investors, and their price targets will always be incredibly optimistic. Take them with a grain of salt. When the crypto market is on an upswing, it's easy to be bullish and expect that Bitcoin will only keep rising in value.
CRYPTO: BTC
Key Data Points
Is Bitcoin still a good investment today?
With Bitcoin's market cap higher than some of the top companies in the world, investors should be thinking twice about whether the cryptocurrency has become inflated in value. I believe it has, and that a significant correction could be overdue.
In a crypto world where there are thousands of coins to choose from and where Bitcoin really holds no sustainable competitive advantage over other cryptocurrencies in terms of use cases, I believe it has become grossly overvalued. Its big advantage today is that it is simply the most popular and recognizable coin, but that doesn't mean it will stay that way. Even if the crypto market as a whole may rise in value over time, that doesn't necessarily mean Bitcoin will. Newer and better coins could gain ground over time.
I wouldn't buy Bitcoin now because it's a highly speculative asset to own, but if you're inclined to do so, I'd suggest allocating only a modest amount of your portfolio toward it in order to minimize your overall risk.
