Bitcoin (BTC -0.09%) is famous for its huge surges and sudden plunges. But in the long term, it's been a terrific investment for patient investors. During the past five years alone, Bitcoin's value has risen by nearly 1,500%.
So far this year, however, crypto markets have been down across the board. Bitcoin has been no exception. Is this your chance to add more Bitcoin to your portfolio at a discount or perhaps start accumulating Bitcoin for the first time? The short answer is yes, but there's an important catch every investor must understand.
CRYPTO: BTC
Key Data Points
Here's why Bitcoin's value has dropped
As with the stock market, it's not always obvious what exactly drives Bitcoin's valuation higher or lower. There's always plenty of news to attribute to various price movements, of course. But picking the specific story driving a certain correction or surge is always a matter of judgment. That said, there are a few newsworthy items that probably are hurting Bitcoin's valuation right now.
In January, Bitcoin's value hit an all-time high of more than $109,000. At the time, there was plenty of hype around the incoming presidential administration in the U.S., specifically regarding its regulatory friendliness toward the crypto industry. Since those highs, however, other regions like Europe have introduced new regulatory restrictions, while the regulatory accommodation in the U.S. is still mostly a matter of theory. Meanwhile, economic uncertainty plus rising geopolitical tensions surrounding the unfolding trade wars have spooked both the stock and crypto markets.
But a lot can get lost in the noise of turbulent periods like this. During the past 14 months, for instance, Bitcoin's value has still doubled, even factoring in the latest decline. In the long term, Bitcoin's performance remains one of the most impressive of any asset ever. If you're willing to remain patient, there's one reason in particular to keep loading up on Bitcoin.
1 reason to buy now and never look back
There are a lot of reasons to be bullish on Bitcoin over the long term. The crypto economy remains in its infancy, and during the coming decades, we could see large parts of our economy -- everything from simple money transfers to complex artificial intelligence (AI) services -- use Bitcoin as an underlying means of transaction. But even if that future doesn't come to pass, there's one compelling reason to remain very optimistic about Bitcoin's long-term future.
The term "store of value" is used by economists to describe an asset that investors can purchase, hold, and sell at a later date that theoretically holds most of its value throughout a variety of conditions. Gold is a great example of this. Yes, gold's value can vary over time, sometimes wildly so. But it's largely considered a haven asset that you can simply buy and hold, with no underlying business or financial scheme needed for its value to hold up or even rise.
It has taken years for many people to be convinced, but Bitcoin is now largely considered as a fledgling store of value. Its underlying protocol is decentralized, not requiring anything but the persistence of Bitcoin miners to remain functioning into perpetuity. The longer Bitcoin goes on existing, the more it will be accepted as a blue-chip holding. That's great news for patient investors. Right now, the total market cap for gold is about $20 trillion. The total market cap for Bitcoin, meanwhile, remains well under $2 trillion.
In total, based on Bitcoin's store of value potential alone, there's enormous long-term upside potential simply by closing the gap with gold. Everything else, all of that potential hype around a global crypto economy, simply becomes a bonus. If you're willing to buy and hold for the next decade, Bitcoin's latest correction looks like a great entry point. Just prepare for more volatility. You'll need to maintain diamond hands.
