If you don’t already hold some Bitcoin (BTC -2.88%), there’s a very good chance that buying it could help to round out your portfolio. Even a relatively small position, like perhaps $2,500, is enough to give investors exposure to this critical asset. And if you’re willing to hold it for years, it could be a good source of growth as well as stability in turbulent times.
Here are three reasons why Bitcoin belongs in (almost) everyone’s portfolio these days.
1. It’s an inflation hedge
One of the most important reasons to own even a little Bitcoin is that it can protect at least a portion of your total purchasing power from surges in monetary inflation.
The total number of Bitcoins is fixed by a hard cap in its protocol. There are about 1 million coins left to be mined, or around 5% of the total permitted in the protocol. In contrast, no matter where you live, the government can print more money. In most cases, over the long term, it will, even if the printing is unnecessary or if the result is beneficial or benign for consumers’ purchasing power.
There is no need to live in fear of hyperinflation and stack your paychecks into Bitcoin. But why leave yourself vulnerable when it doesn’t cost much to buy an asset that offers some protection from the worst-case scenarios? Plus, if the coin continues to perform as it has in the past, it’ll gain in value and eventually pay for itself, regardless of whether your fiat currency is losing value or not.
2. It’s the primary asset in the cryptocurrency sector
Bitcoin’s market cap is currently around $1.9 trillion. The entire cryptocurrency market cap is only $3.2 trillion. The next-largest cryptocurrencies are Ethereum, with a market cap of $335.6 billion, and XRP, which has a cap of $151.8 billion. There is simply no way of avoiding the fact that Bitcoin is the flagship cryptocurrency for the entire crypto sector.
If you want to maintain a well-diversified portfolio, you need exposure to a major sector like cryptocurrencies. If you don’t have it, you risk missing out on sector-level growth, which is a significant factor in the context of an emerging area like crypto. Plus, with ongoing debates about whether there will be a national cryptocurrency reserve in the U.S., it’s clear that more growth is very likely to be on the way, even if it isn’t clear exactly which assets will benefit the most.
Investing in the leader is an easy way of gaining exposure, and Bitcoin is the leader. The best part is that if the evangelists are right, and the coin’s future remains very bright thanks to ongoing adoption by governments and major financial institutions, a small investment will grow proportionately by just as much as a big one. So there’s no floor for how little you can commit to get a decent return.
3. It’s increasingly linked into the traditional financial sector globally
One additional big reason to hold Bitcoin is that it’s an asset that the world’s major financial institutions are holding.
With their tokens, they offer banking services to investors, issue exchange-traded funds (ETFs), transact with each other, track ownership of assets on the blockchain, and issue financial derivatives to generate fees. Furthermore, as long as there’s value stored on the blockchain, they’re likely going to continue buying more Bitcoin over time to shore up their reserves. With those activities, they’ll be increasing the level of integration that the cryptocurrency has with the traditional financial sector.
That’ll make it less volatile, drive prices up, and give more conservative investors the confidence to hold on to it for longer periods. And since investors are increasingly able to buy the coin via their brokerage and retirement accounts rather than via specialized blockchain software, more people will be willing to invest, which will also support a higher price level.
But the most important thing for investors with smaller portfolios is that these financial institutions will almost certainly be willing to buy their Bitcoins at the fair market value for the foreseeable future. In other words, it’s an asset that is now widely recognized to be worth owning.
For me, that makes it worth buying a little bit if you don’t already have some.
Alex Carchidi has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and XRP. The Motley Fool has a disclosure policy.
