For centuries, people have been intrigued by the idea of owning something special -- something unique. Over time, things like artwork, rare collectibles, and even wine have become coveted by the world's most sophisticated investors.
Over the last decade, cryptocurrency has emerged as a significant player in the world of alternative assets. But just like art, memorabilia, and commodities, the crypto realm has its share of both legitimate opportunities and dubious hopefuls.
In the analysis below, I'll break down why I think Bitcoin (BTC 0.60%) is the best choice for investors seeking exposure to cryptocurrency in their portfolio.
CRYPTO: BTC
Key Data Points
What makes Bitcoin unique?
No matter what asset class you're exploring, the law of supply and demand dictates how pricing mechanics work. These dynamics can be a bit elusive in the world of alternative investments, though.
For example, when feelings of uncertainty permeate the economy, it's not uncommon for investors to liquidate stock positions and rotate capital into something considered more stable and durable, such as gold. In turn, the price of gold moves higher.
But imagine if you knew exactly how much gold there was on the planet. Having a precise supply figure around this measurement might influence commodity prices more accurately than investor sentiment alone.
With Bitcoin, we actually have this. Currently, there are approximately 19.9 million Bitcoins that have been mined and are in circulation. In total, there will only ever be 21 million Bitcoins in its supply base.
Given these fixed structural dynamics, Bitcoin is thought of as a store of value and has even been referred to as digital gold. This unique model makes Bitcoin perceived as rare, inspiring a scarcity mindset among investors racing to buy the cryptocurrency before they miss their chance.
Image source: Getty Images.
Why is Bitcoin selling off?
While Bitcoin previously reached a record price of nearly $125,000 earlier this year, the cryptocurrency is now trading 27% below its all-time high.
Bitcoin Price data by YCharts
Several factors are influencing Bitcoin's sell-off, but all of them are tied to the broader macroeconomic picture.
First, consumers are still fighting off the ultimate economic pest: inflation. While consumer spending has remained fairly resilient, prices across certain goods and services remain elevated.
Piggybacking off of this, the Federal Reserve has pushed back further interest rate reductions. This decision has added an extra layer of caution around the investment community.
The combination of lingering inflation and delayed reductions to borrowing costs has resulted in a tightening of liquidity supply. In other words, investors are less inclined to take on additional risk in a volatile asset, such as cryptocurrency, when they have less discretionary capital to work with.
Should you buy the dip in Bitcoin?
Bitcoin is synonymous with rather pronounced peaks and valleys. And unlike stock in a company, Bitcoin is not an enterprise with management, quarterly earnings, or corporate governance.
In light of its unpredictability, investors with a diversified portfolio may want to consider some small exposure to Bitcoin. Despite its recent weakness, I view Bitcoin as a resilient investment overall.
Overall, I think Bitcoin is still in the early innings of its evolution as a digital asset. A modest sum of $1,000 allows investors to acquire a small stake in a growing market opportunity without being overextended or too concentrated.
The cryptocurrency's accelerating institutional adoption lends a rare level of credibility in the cryptocurrency landscape. Moreover, Bitcoin's limited supply makes it an interesting complement to other alternative assets that you may own.
Against this backdrop, Bitcoin could be right for you if you employ a long-term mindset and are actively seeking additional growth opportunities besides stocks and bonds. For these reasons, I think now is a good opportunity to buy the dip in Bitcoin.
