Bitcoin (CRYPTO: BTC) is an asset that’s worth holding in your portfolio, even if it’s just a small holding. And for many investors, a larger allocation of up to 5% of the portfolio’s total value is justifiable. It simply offers too much to pass up.
Let’s take a look at three reasons everyone should own some of it.
Image source: Getty Images.
Inflation is an underrated drag on the value of many portfolios. Bitcoin is an asset whose supply can’t increase, meaning that, over the very long run, its purchasing power can’t be diluted by supply factors.
There can only ever be 21 million Bitcoins, and close to 20 million have already been mined.
But calling it an inflation hedge without qualifiers is sloppy. History (as well as academic research on the topic) suggests that the coin’s inflation-hedging behavior depends on the economy; when people’s purchasing power is broadly under pressure, Bitcoin does often act as a hedge, but when the economy is in a state of overt crisis, such as during the early pandemic, it doesn’t hedge effectively at all compared to assets like gold.
So if you buy it, treat it like insurance against long-run fiat currency debasement rather than a month-to-month protector of purchasing power. It’s a bit too volatile to fill that role.
Within crypto itself, Bitcoin remains the reference asset that everything else revolves around. It’s worth $1.4 trillion of the entire sector’s market cap of $2.5 trillion.
In most crypto market cycles, when Bitcoin rises or falls sharply, the rest of the sector tends to follow with a bit of lag and a lot of extra drama for holders. Therefore, owning a small amount of Bitcoin is an easy way to get broad exposure to crypto, as you don’t need to go through the hassle (or take on the extreme risks) of picking a basket of smaller altcoins to accomplish the same goal.
Today, it’s easier than ever to buy and hold Bitcoin by investing in Bitcoin exchange-traded funds (ETFs), so you don’t even need to spin up a crypto wallet of your own to hold it.
That also means there’s less friction for companies that want to hold crypto assets. And given that more than 4 million Bitcoins are currently held by countries, companies, ETFs, and other large and conservative holders, an ever-increasing proportion of the supply is being held in the coffers of those who are least likely to sell on a whim.
So if you buy and hold Bitcoin, you’ll get upside from the growing number of businesses that are also buying and holding it. Assuming they prefer to hold on to their coins to benefit from their increasing scarcity over time, its price will be biased upward, and if you hold any, you’ll benefit, too.
Before you buy stock in Bitcoin, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Bitcoin wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $443,299!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,136,601!*
Now, it’s worth noting Stock Advisor’s total average return is 914% — a market-crushing outperformance compared to 195% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
Read more on NASDAQ Stock Market
