Bitcoin is still in its infancy and has many benefits to offer investors.
Cryptocurrencies are attractive but also fraught with risk. The blockchain technology that underpins these assets is revolutionary and has the potential to transform finance as we know it, but its future role remains murky and largely unclear.
But there is one proven cryptocurrency that offers investors the safest exposure to the best the crypto market has to offer, and here's why I would buy it: Bitcoin (BTC -0.90%) Like there's no tomorrow.
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1. Halving effect
On April 19th, Bitcoin went through its fourth halving. Halving, which occurs approximately every four years, is the basis for Bitcoin's strong monetary policy, which prioritizes maintaining scarcity by halving inflation. Now that the fourth halving has passed, Bitcoin's inflation rate is only 0.85%. This makes it a lower inflation rate than gold, which many consider to be a good store of value and inflation hedge.
In the long term, it's easy to see how a continued decline in inflation would benefit Bitcoin's price. If demand for the cryptocurrency continues to grow, a decline in inflation would put further pressure on the finite supply of 21 million coins. Add all this together and you have a perfect recipe for price increases.
In the short term, the impact of the halving makes Bitcoin a good investment even today. On average, Bitcoin increases by 125% in the year that the halving occurs. Year-to-date, the price was just over $100,000, and even at a current price of around $65,000, there is still a lot of potential for returns. However, Bitcoin's best value is usually realized the year after the halving. Historically, Bitcoin has increased by over 400% during this period.
2. Institutional investors in the financial industry have the highest interest and a clear role
Since its inception, Bitcoin's rapid growth has been driven by retail investors. But now, that's about to change. The approval of the Spot Bitcoin ETF has made it easier for institutional investors with huge capital reserves to invest in the cryptocurrency. With the inclusion of some of Wall Street's biggest names, Bitcoin's finite supply will likely be under more pressure than we've seen since its inception.
On a somewhat related note, the fact that Bitcoin has been approved as a spot ETF is an indication of the market’s current perception of Bitcoin and its role in the financial world. For example: Ethereum (Cryptocurrency: ETH)Ethereum, the second most valuable cryptocurrency, is in the middle of a heated debate over ETF approval as regulators try to determine whether it is a security or a commodity. If such a debate is taking place about Ethereum, surely all other cryptocurrencies will be questioned as well.
Now, I will be the first to admit that just because the U.S. Securities and Exchange Commission (SEC) considers cryptocurrencies to be securities does not spell the end of any particular blockchain. Most of these assets are fairly decentralized and will continue to operate even if the SEC files a lawsuit. Remember that cryptocurrencies are traded internationally and are not subject to the laws of any particular country.
But markets don't like legislative risk, which is why Bitcoin is such a safe investment today: the SEC already considers it a commodity and outside of its scope of control. This gives Bitcoin an extra layer of assurance that it has its own staying power and won't be hampered by regulatory oversight.
3. A Class of Its Own
Similarly, Bitcoin's unique core characteristics compared to nearly all other cryptocurrencies have earned it significant institutional interest and a distinct place in the financial industry.
Investing in Bitcoin means investing in the most decentralized, secure and proven cryptocurrency on the market. There is no entity that oversees Bitcoin operations. We don't even know who created it. All we know is that Bitcoin's creator used the pseudonym Satoshi Nakamoto, but then disappeared.
No other cryptocurrency can make this claim: most other cryptocurrencies have known creators and teams of developers who keep them functioning, making them much more likely to be subject to SEC scrutiny.
Conversely, Bitcoin has operated almost in its original form for the past 15 years, without any central figure or authority. In other words, even if the SEC wanted to take action against Bitcoin, it couldn't. Who would they sue? Bitcoin's creators are unknown, and it runs on the most decentralized network with thousands of nodes around the world.
Final thoughts
Adding it all up, we can say that there is no bad time to invest in Bitcoin. Are some times better than others? Absolutely. Investing in the middle of a crypto winter should provide better returns than investing at the peak. But data shows that even buying at the peak will provide big returns in the long run if investors hold on long enough.
As fiat currencies continue to inflate, institutional interest grows, and the halving continues, Bitcoin will continue to exceed expectations and show what makes it different from other assets. MicroStrategy (who owns about 1% of Bitcoin's total supply) is probably saying “I'll keep buying at the top forever.”
