Unlikely Match: A Long-Term Investor’s View of the Top 3 Cryptocurrencies | The Motley Fool
When it comes to creating a long-term buy-and-hold strategy, many investors whiten the idea of adding cryptocurrencies to their portfolios. Yes, crypto is a highly volatile and speculative asset class, so adding it to an investment portfolio that you expect to generate superior long-term gains might seem like an unlikely pairing.
However, many of the top cryptos are starting to develop a track record of success. Bitcoin (BTC 2.51%)for example, recently celebrated its 14th birthday. Ethereum (ETH 2.75%) was announced by blockchain pioneer Vitalik Buterin nearly nine years ago. These cryptos have seen their share of market corrections and crashes and have become the most popular investment options for crypto investors. With that in mind, here is a long-term investment perspective on three of the top cryptocurrencies.
Bitcoin was, quite literally, the first buy-and-hold cryptocurrency (although Bitcoin investors prefer to use the term HODL instead of “hold”). And for good reason. If you bought Bitcoin in 2009 and held it so far, you would have risen by 16,979.47%. Additionally, Bitcoin has repeatedly rebounded from market setbacks and even stock market crashes. If you thought 2022 was tough, go back to 2018 when Bitcoin fell 73%.
Taking a long-term perspective on Bitcoin, there are two reasons to be optimistic about the future of this crypto. The first is that Bitcoin has a fixed coin supply. Only 21 million bitcoins can be created, they will only become rarer and more valuable over time. This is due to the algorithmic nature of Bitcoin, which specifically defines how much Bitcoin can be mined. It is for this reason that people refer to Bitcoin as digital gold. Just as the Earth’s supply of gold is limited, so is the Earth’s supply of Bitcoin.
The other reason to be optimistic about Bitcoin’s long-term prospects is that it is increasingly integrated into the global economy. So, by investing in Bitcoin, you gain access to tremendous global diversification. Currently, only a handful of countries like El Salvador are fully adopting Bitcoin. However, diehard Bitcoin bulls believe that crypto will eventually replace fiat currencies in the global financial system and that all nations will eventually rely on Bitcoin in one form or another.
Ethereum, like Bitcoin, has provided superior returns over its lifetime. If you had invested in Ethereum in 2015, you would now be up 56,832.35%. What makes Ethereum so attractive to long-term investors is its utility. While Bitcoin is primarily just an online payment option, Ethereum provides the blockchain infrastructure for developers to build apps, games, metaverse worlds, and just about anything you can imagine related to. Web3. Ethereum introduced the world to smart contracts, non-fungible tokens (NFTs), and decentralized finance (DeFi), so its reputation as an innovator is well-earned.
You could also argue that Ethereum is now built for the long haul, given its recent technology upgrade. Before The Merge, Ethereum was relatively energy-intensive, slow, and inefficient. After the merger, Ethereum’s power consumption is expected to drop by 99.9% and it will become faster, more cost-effective, and more efficient. Investors no longer have to worry so much about a new upstart challenger toppling Ethereum from its position as the premier layer-1 blockchain network.
Finally, there is Binance (IN B 3.49%), which now has a market capitalization of nearly $50 billion. While many investors think of Binance As the largest cryptocurrency exchange in the world, Binance is much more than that. Binance is a layer 1 blockchain, just like Ethereum, and that means people can build on top of Binance, just like Ethereum. This has spawned a very vibrant blockchain ecosystem that includes a popular stablecoin, as well as apps, games, and Web3 projects. Binance is well known in the crypto world for incubating new projects and coins.
However, as we have seen with the recent FTX (FTT 1.52%) collapse, Binance’s truly global reach in all aspects of the crypto world means it often clashes with competitors and rivals in unexpected ways. In FTX’s case, that meant an epic showdown with former FTX CEO Sam Bankman-Fried. In other cases, it means Binance occasionally clashes with national regulators and law enforcement officials, such as the ongoing US investigation of Binance for potential money laundering. Based on Binance’s extensive legal and regulatory risks, I’m somewhat skeptical that Binance will retain its market-leading position over the next 20 years, so I can’t recommend it as a long-term investment.
The Case for Buying and Holding Bitcoin
Of the three cryptos here, Bitcoin has the clearest path to becoming a trusted part of your long-term portfolio. It’s the undisputed market leader by market capitalization, it’s a favorite of retail and institutional investors, and it has a true long-term global growth strategy that extends to 2140, when the last bitcoin will be extracted. If there’s only one crypto to add to your long-term portfolio that you can buy and hold forever, it’s Bitcoin.
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