If you had invested $1,000 in Bitcoin in 2013, here’s how much you would have now
Perhaps the most significant market development in recent years has been the growing popularity of cryptocurrency. This new asset class, now made up of tens of thousands of different tokens, made some lucky early backers rich. But it undoubtedly caused some speculators to lose money.
In the world most valuable cryptocurrency, Bitcoin (BTC -2.02%), has shined and been one of the best performing traditional financial assets over the past few years. And even a small amount of dollars in top crypto could have changed investors’ lives.
Bitcoin has produced a monster comeback
Since May 1, 2013, the S&P500 produced a total return of 187%. It’s not too shabby, but it’s not worth Bitcoin, which has seen its price skyrocket from $145 per coin to over $20,000 today. This monster performance equates to a gargantuan yield of 13,900% (at the time of this writing). And that means a $1,000 investment in Bitcoin back then was worth $140,000 today.
You’d be hard pressed to find a more lucrative investment over the same period. Some of the best known growth tech stocks don’t even come close. The juggernaut of e-commerce and cloud computing Amazon and streaming service provider netflix have posted returns of 876% and 692%, respectively, since May 2013. That’s not even in the same range as Bitcoin.
Until now, Bitcoin has been used as a tool for financial speculation, a general characterization that can be made for all cryptocurrencies. But besides the bullish case arguing that it will continue on its way to becoming a legitimate store of value, like a digital goldBitcoin’s most ambitious goal is to become a global currency.
At first glance, this may seem like an impossible task, given that it would undermine the power that governments and their central banks have over the money supply within their borders. However, consider the huge quantitative easing that has occurred in the United States since the Great Recession and during the coronavirus pandemic. The United States is currently experiencing the highest inflation in four decades. And that doesn’t even take into account what citizens of developing economies see, in some cases corrupt regimes and hyperinflation. In this context, the adoption of Bitcoin as a medium of exchange takes on its full meaning.
Should Investors Buy Bitcoin?
Unsurprisingly, an investor, whether individual or institutional, is often the first exposed to cryptocurrencies. by buying bitcoin. Bitcoin is the oldest and most developed digital asset, not to mention the most liquid and valuable. This situation has resulted in a ton of supporting financial infrastructure being built around Bitcoin, making it incredibly easy to buy.
For instance, To blockCash App, PayPal Creditsand Robinhood Markets all allow users to buy, hold, and sell bitcoin seamlessly. Coinbase global, the leading US crypto brokerage and exchange, also offers these capabilities to institutions. And you can’t ignore the growing number of Bitcoin-focused exchange-traded funds on the market today.
Before buying Bitcoin, investors should familiarize themselves with the extreme volatility. Over the past five years, the price of Bitcoin has seen declines of at least 50% three times. This includes the 71% drop (at the time of this writing) after hitting an all-time high near $69,000 a coin last November. This top-down activity cannot be avoided.
Also, due to the unknown regulatory future and the still nascent level of adoption, I believe the right strategy for long-term investors is to allocate only a small portion of a well-diversified portfolio, less by 5%, to Bitcoin. If Bitcoin can match its past and generate a major outperformance, it will certainly move the needle for the entire portfolio. But if not, investors should be able to handle a price drop because the allocation is small and manageable.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Neil Patel holds positions at Amazon, Bitcoin, Block, Inc., and Coinbase Global, Inc. The Motley Fool holds and endorses Amazon, Bitcoin, Block, Inc., Coinbase Global, Inc., Netflix, and PayPal Holdings. The Motley Fool has a disclosure policy.