The influence of technology on the economy and investment environment remains significant. This is especially evident with the emergence of cryptocurrencies, marking the birth of an entirely new asset class fueled by the internet.
At the forefront is Bitcoin (BTC -6.56%), which has risen to prominence. Over the past decade, this leading digital currency has achieved a staggering return of 32,530% (as of April 3). Its path has been turbulent, yet that growth vastly outpaces the stock market.
Currently, Bitcoin’s price is under pressure, having dropped 22% from its peak, largely due to persistent macroeconomic uncertainties. However, the horizon appears promising. What does the future hold for Bitcoin in the next decade?
Unavoidable
Critics have raised concerns regarding Bitcoin’s volatility, perceived lack of intrinsic value and cash flows, high energy consumption, association with illegal activities, and regulatory uncertainties. In spite of these criticisms, Bitcoin has endured through time.
Today, as a $1.6 trillion asset, Bitcoin is difficult to overlook. One of its previously significant risks, the possibility of a U.S. government ban, seems to have dissipated.
The Trump administration has taken steps to bolster Bitcoin’s acceptance. The government announced a strategic Bitcoin reserve, released Ross Ulbricht (the creator of the infamous Silk Road digital marketplace) from prison, and appointed a crypto-friendly chairman to the Securities and Exchange Commission. More regulatory relief may be on the way.
In early 2024, the approval of spot Bitcoin ETFs for trading marked a pivotal moment, significantly legitimizing Bitcoin within the financial sphere and enabling broader access to capital for purchasing the digital asset. Now, 15 months after their launch, these ETFs have attracted over $90 billion in inflows, underscoring their success. However, it is essential to acknowledge that Bitcoin’s volatility remains a valid concern. While it is less erratic than in its formative years, its value continues to experience fluctuations akin to those of high-growth tech stocks.
Bitcoin’s Long-Term Potential
Despite its extraordinary growth in the last decade, Bitcoin still holds the promise of generating robust returns through 2035.
One of Bitcoin’s most attractive features is its capped supply. The code dictates that there will only be a maximum of 21 million coins issued at a predetermined rate. This setup can only change if consensus is reached among all network nodes, which adds a level of scarcity that is quite appealing. As demand rises, so too should the price.
This supply limit becomes particularly significant when compared to fiat currencies. Currency issued by governments, such as the U.S. dollar, euro, or Japanese yen, has seen increased production, often leading holders to experience erosion in their purchasing power each year.
The U.S., as the leading global economy, is grappling with a substantial debt crisis, currently standing at $37 trillion, a number that is sure to escalate due to the ongoing massive fiscal deficits. More money will be printed, increasing the money supply. Given that Bitcoin serves as a risk asset benefiting from global liquidity, it is reasonable to predict that Bitcoin will continue to thrive amidst government deficits.
How much higher can Bitcoin ascend? It’s likely that future returns will not mirror those of the past. As Bitcoin matures, the era of dramatic price surges may be closing.
With gold currently valued at $21 trillion, if Bitcoin were to reach this level, it would represent a thirteen-fold increase. I consider this a conservative perspective, given that Bitcoin possesses superior properties compared to gold. Acquiring Bitcoin during a dip today and holding it for a decade could turn out to be an exceptionally astute decision.
Neil Patel and his clients hold no positions in any of the mentioned stocks. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool maintains a disclosure policy.
