As Bitcoin and other cryptocurrencies gain more legitimacy, now may be the time to evaluate their potential role in a diversified portfolio. Much of this will be determined by your own individual goals and risk tolerance, but you may be surprised to learn how far Bitcoin has come in a relatively short time frame.
Due to factors like infancy and massive price swings, cryptocurrencies are generally more volatile than stocks. For example, stocks on the S&P 500 are generally more stable than Bitcoin and other cryptos. But something investors have to consider is how risk-averse they are, compared to how much growth they are seeking.
That being said, there’s no denying Bitcoin’s growth compared to traditional stocks. The digital asset outperformed all but two S&P 500 companies in 2020. In other words, Bitcoin was a better investment compared to over 95% of stocks in the S&P 500 in 2020. Plus, when you look at Bitcoin’s growth compared to the growth of the S&P 500 as a whole from April to December 2020, it’s clear that they grew at entirely different rates. The chart below shows Bitcoin (blue) and the S&P 500 (yellow) across the latter half of 2020.
Image source: Yahoo Finance
Even so, those who invested in Ethereum saw an increase of over 430% from April 2020 to the end of the year, eclipsing its technological predecessor, Bitcoin. One of the top 10 cryptocurrencies by market cap, Litecoin, has more than doubled in price as well. Of course, all of this isn’t to say cryptocurrencies are guaranteed to only increase in price. More so, cryptocurrencies like Bitcoin can exist alongside the stock market and even improve upon it with a higher potential for growth.
Why are Cryptocurrencies Growing so Fast?
The growth of cryptocurrencies is no coincidence or chance of luck. Bitcoin and other cryptocurrencies are growing partly due to their increased support from institutions. The world’s first cryptocurrency, Bitcoin, is seeing support from more vendors than ever. PayPal now enables cryptocurrency support for Bitcoin, Ethereum, Litecoin, and other top assets to over 360 million customers. With the US dollar’s decrease in value due to money printing, investment groups are viewing Bitcoin as an economic hedge as it has a maximum supply of 21 million.
Conversely, while Bitcoin is used as a currency, Ethereum can be seen as a strong store of value. It’s a platform that can be used to benefit supply chains or for investors to trade gold and other physical assets without hassle and with less volatility. To invest in Ethereum is to enable another side of the blockchain industry. Again, the utility is there, and it’s finally being recognized, especially when it comes to Ethereum 2.0.
There are thousands of other cryptos to invest in as well. Some projects target lending and borrowing, while others allow you to earn interest on crypto. However, before investing in anything, it’s important to understand and believe in the project’s mission.
Long-Term Crypto Speculation
The crypto market has plenty of potential room to grow as it has been alive for more than a decade. Cryptocurrencies may receive governmental support from the new crypto-friendly SEC chief, which would help decrease the worries of governmental supervision. Bitcoin also has support from individual investors and massive companies alike. Dozens of institutions like Tesla, Square, and MicroStrategy are putting billions of dollars of cash into the digital asset. Big spenders are likely looking to hold their digital assets, which bodes well for Bitcoin and other cryptos to invest in.
If you’re looking to profit in the long-term, you can consider crypto as an important part of your retirement account. While crypto investments can be speculative, expert price predictions point toward Bitcoin reaching well over $100,000 within a year. A Bitcoin IRA also allows you to invest tax-free or tax-deferred, to help make sure you keep more of your capital gains. Plus, our new Bitcoin IRA Earn program allows investors to earn up to 6% APY on their assets, including Bitcoin, Ethereum, and cash.
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