3 reasons to buy Bitcoin

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In the world of equities, most investors know that a first-come advantage is a big deal. In the world of cryptocurrencies, this also seems to be the case. As the world’s first option (and for quite a while) for crypto enthusiasts, Bitcoin (CRYPTO: BTC) has led the way in reshaping the way investors view assets.

The rise of digital tokens and blockchain technologies has changed the paradigm when it comes to how we think about commerce. Indeed, the rise of Bitcoin has given credence to the idea that cryptocurrencies have the potential to transform the world as we know it. Everything from payments and transactions abroad to banking, insurance and other major institutional functions that we take for granted are at risk of disruption.

Or, at least, crypto enthusiasts hope so.

Many investors remain on the fence. After all, the volatility that cryptocurrencies have shown is both remarkable and overwhelming. Additionally, crypto theft, the otherwise nefarious uses of cryptocurrencies, and the pesky question of how to fundamentally value these digital tokens remain a pain for investors who simply don’t know where to start.

Let’s take a look at three reasons why Bitcoin continues to be a staple today for many large crypto investors.

IMAGE SOURCE: GETTY IMAGES.

A large investor base ensures stability

It is certainly difficult to argue that any cryptocurrency is “stable”. That is, volatility is an accepted reality in the crypto world. Bitcoin is certainly no different from its peers in this regard.

However, the large investor base that Bitcoin enjoys offers investors some advantages. It is perhaps the easiest cryptocurrency to trade or find on any given exchange. Indeed, Bitcoin is generally considered the “gold standard” among many investors, we’ll get to that in a minute. The simple fact that most cryptocurrencies are priced not only in US dollars, but also in BTC, reflects this concept well.

This large investor base has started to include large institutional investors and “mainstream” money in recent times. Generally speaking, large institutional investors do not tend to reverse their investments in the same way as retail day-trading traders. The idea that Bitcoin, seen as the king of cryptocurrencies, could one day stabilize with a sufficiently large investor base, is intriguing to those considering cryptocurrencies.

Potential benefits of coverage

For investors who haven’t noticed, stocks don’t come cheap. Indeed, by some metrics, stocks are currently trading at valuations that (historically speaking) have never been seen before.

The famous “Warren Buffett Indicator” tells us so. The total market capitalization of the US stock market is now more than double that of US GDP. In previous bubbles (including the dot-com bubble), this metric approached 150%. As a result, many economists and value investors today have reason to shrink from this extremely high level.

But where to put your money?

Bond yields remain close to their historic lows. And with inflation far exceeding bond yields, a negative real yield for many investors is unattractive.

As a result, other alternative investments have become more and more attractive. There’s real estate (which offers decent returns, but with significant transaction costs and headaches), gold, and of course cryptocurrencies.

The returns that Bitcoin has provided since its inception relative to the stock market are mind-boggling. As a result, the temptation to chase after these returns has significantly boosted the flow of capital to Bitcoin.

Bitcoin considered a store of value

Indeed, the idea of ​​Bitcoin as a market / inflation hedge is intriguing. Capital flows are important to the cryptocurrency industry. And given Bitcoin’s status as the largest cryptocurrency by market cap, the argument that excess returns from seeking money outside the stock market end up in Bitcoin is based specifically on the idea that Bitcoin is a superior store of value.

Like gold, investors hope that by buying something that may not have much use outside of specific use cases (gold and crypto are similar in this way), the price will appreciate. of said store of value will stabilize its returns in a bear market.

In other words, like buying a few gold coins and burying them in your garden, it is a way for people to save money for rainy days. When the time comes to dig that chest up or take that Bitcoin out of the cold room, the hope is that it will be worth more in the future than when said investor made the purchase.

Last word

Bitcoin certainly comes with its fair share of risks. Cryptocurrencies in general are very volatile assets with questionable intrinsic values. Accordingly, for those looking to invest part of their investment portfolio in Bitcoin (or any other cryptocurrency for that matter), it is important to do so in a way that matches the risk tolerance level of ‘a given investor. It is important to properly size such positions and build your portfolio in a way that allows an investor to sleep well at night.

However, Bitcoin remains the gold standard in the cryptocurrency world for investors considering this space. It has become synonymous with the industry itself and is the number one choice for many crypto investors for a reason. As a result, those looking to dive into crypto at this point in the game certainly have reasons to stick with the leader in this space.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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