Bitcoin (BTC 0.88%) has earned a place in almost every investor's portfolio. As the anchor for the entire cryptocurrency sector, the coin is also becoming increasingly integrated into the traditional world financial system. And, with a few major catalysts in progress, there's no time like the present for investors who are considering starting a new position.
In fact, if you had to choose just one cryptocurrency out of all of them to invest in this year, there's a compelling argument for why it should be Bitcoin.
CRYPTO: BTC
Key Data Points
Clearer regulations and new policies could drive a boom
Bitcoin is undergoing worldwide adoption among individuals looking to invest in something that's distinct from fiat currency, as well as among financial institutions looking to get exposure to cryptocurrency as an asset class or to provide financial products with that exposure for their customers. The main reason that those financial institutions are willing to dabble in the coin today is that its regulatory status is in the process of being clarified in major economies, particularly the U.S.
That process is likely to conclude relatively soon. The new leadership of the Securities and Exchange Commission (SEC) will probably take a pro-cryptocurrency stance and issue new guidelines for competition and conduct within the industry. Therefore, the capital from institutional investors and financial players now holding back is likely to flow into Bitcoin with gusto once that occurs.
Another major green light to buy Bitcoin is that the U.S. government has resolved not to sell any of the coins that it accumulates from asset forfeitures, opting instead to hold them in the planned Strategic Bitcoin Reserve (SBR). If that policy is implemented and then maintained by future administrations, it would represent an ever-increasing portion of the coin's supply that's off the market, thereby leaving buyers to compete in the form of higher prices for the remaining supply. Over a long enough period, that probably will pay off for those who buy the coin today.
It can deliver even if the best-case scenario doesn't play out
Don't take the above to mean that Bitcoin prices won't gain if regulators don't produce the perfect set of policies or if the government backtracks or bungles its plans for the SBR. These catalysts, although certainly nice to have, are not at all necessary for the coin to pay off as an investment over the long term.
Thanks to its halving cycle, which occurs over a roughly four-year period, Bitcoin's mining difficulty doubles at fairly regular intervals. That means investors have an incentive to buy it today, because in the future supply growth will slow as it become more difficult to produce new coins. The result may be less supply available to purchase at any given moment. As more investors awaken to that dynamic over time, new capital inflows may well send the price higher.
But why not invest in other cryptocurrencies that might have stronger growth drivers, like blockchain ecosystems or other institutional adoption factors that might benefit from major catalysts? In a word, risk. Bitcoin is the purest cryptocurrency play on the market; it isn't trying to be a home for decentralized finance (DeFi) or other cryptocurrency growth niches. That means it can avoid the risk of declining value as a result of losing a competitive fight on the basis of its technology or its user-friendliness.
Furthermore, while other leading cryptos are exposed to similar sets of regulatory catalysts as well as their possible inclusion in the Digital Asset Stockpile, the (still unimplemented) sibling of the Strategic Bitcoin Reserve, they're simply far smaller than Bitcoin and far more volatile. So, even if they might have a chance at growing faster, they're nowhere near as established in terms of their financial heft.
If you do end up making Bitcoin the only cryptocurrency you invest in this year, remember that you'll still need to use good investing practices to do so. Set up a series of purchases and pursue dollar-cost averaging (DCA), wherein you're consistently buying a small amount of the coin over time rather than making a big lump-sum investment. Don't buy unless you're ready to hold for years and years, and don't bother checking the price every day.
Commit, and the odds are fairly good that you won't need to worry about buying other coins, provided you're patient enough.
