When it comes to building wealth, the stock market has a solid long-term track record at compounding capital. But in more recent times, investors have been excited about cryptocurrencies. And it makes sense why.
There's one glorious cryptocurrency that has skyrocketed nearly 23,000% in the past 10 years (as of Jan. 23). That gain surely isn't going to repeat in the future. But the digital asset is currently trading 28% below its all-time record from October last year, putting it in a bear market.
Should you buy the dip? I believe the answer is a resounding, "Yes!"
Image source: Getty Images.
This crypto has dominated the industry since day one
If you're someone new to the wild world of cryptocurrencies, or even a seasoned veteran looking to put some money to work, the smart move is to look at the leading name in the industry. And that's Bitcoin (BTC 0.40%), especially since it's trading well off its peak.
Its first-mover advantage gives it the strongest brand recognition. I bet if you ask 100 random people to name one cryptocurrency, Bitcoin would be mentioned the most.
Bitcoin's $1.8 trillion market cap gives it deep liquidity. It's slowly being adopted by users, whether as an investment asset or as a medium of exchange in certain situations. And there is an expanding financial infrastructure that supports it, such as brokerage, exchange-traded funds, derivatives, custody, and payments.
Add in miners, nodes, and developers, and there is a powerful network effect at play. The more stakeholders there are, the better the value proposition of Bitcoin becomes, and the more difficult it is for any competitor to topple it.
Bitcoin's market cap represents 59% of the entire industry today. Ark Invest, an asset manager founded by famed investor Cathie Wood, believes Bitcoin's share will increase to 70% by 2030. Despite the ocean of cryptocurrencies that have sprung up over the years, Bitcoin will continue to dominate the market. Investors should keep things simple and focus on the top dog.
CRYPTO: BTC
Key Data Points
Bitcoin's scarcity is the most important factor
Scarcity is the most crucial factor to consider, as it makes Bitcoin an attractive portfolio addition amid the never-ending debasement of fiat currencies. Bitcoin has a hard supply cap of 21 million units that all its stakeholders have an interest in enforcing, so that limit is unlikely to change unless they want to undermine the network.
Investors would be wise to consider buying Bitcoin on the dip. To be clear, though, this isn't an asset to hold for a short period. Bitcoin is meant to be parked in a portfolio for 10 years or longer. There will be volatility, but that has decreased as the crypto has matured.
