In a sector packed with assets that arrive on Monday and hit zero by Thursday, Bitcoin (BTC -1.78%) stands on its own as a cryptocurrency that’s practically guaranteed to survive and possibly even thrive over the long term. That makes it the smartest coin to buy and hold, and the longer your investing timeline is, the better it looks.
Let’s examine three reasons that’s the case.
1. It’s immune to inflation
One of the core pillars of Bitcoin’s long-term investment thesis is that it’s designed to maintain its purchasing power relative to fiat currencies. You’ve probably heard something along those lines before, but let’s take a moment to really unpack it.
Fiat currencies are issued by governments. Governments tend to cumulatively issue more and more currency over time, which is normal, necessary, and expected. But that means fiat currencies have a tendency to lose their purchasing power in the long run as the amount of money in circulation rises.Â
Bitcoin, on the other hand, has a finite supply: There can only ever be 21 million Bitcoins in circulation (about 19.8 million already circulate). Of that new supply, only tiny fractions of Bitcoin are mined in any one week. And, as the difficulty of mining new coins only increases over time, it becomes harder and harder to meet the existing level of demand for it with the creation of new supply, creating a durable upward pressure on the coin’s price.
In contrast to fiat currencies, Bitcoin thus has a mechanism, escalating scarcity, to become more valuable over time rather than less. It can’t be printed like fiat currency can, nor can its total supply be tinkered with like it can be with many other cryptocurrencies. So even over the course of decades, it has a clear runway to keep growing, even without a lot of new demand.
2. It isn’t going to be replaced by another coin
Bitcoin isn’t the only cryptocurrency that’s marketed as a long-lived store of value. Nor is it the least volatile of its competitors in that category; stablecoins are technically cryptocurrencies, and their price rarely moves at all because they’re pegged to the value of a fiat currency, such as the U.S. dollar. But Bitcoin isn’t about to be replaced by stablecoins, nor any altcoin competitor.
It’s market cap is more than $1.6 trillion. Even the largest stablecoin, Tether, is only valued at about $143 billion. Litecoin, an altcoin that was once branded as “digital silver” in comparison to Bitcoin’s positioning as “digital gold,” is only worth about $6.4 billion. There’s simply no other asset in the crypto sector that’s as large, old, and reliably in the spotlight as Bitcoin.
That means when institutional investors look to allocate some of their vast capital to cryptocurrency, which they’re currently doing in large numbers, they’re not going to bother with the smaller fish because they won’t be able to buy or sell at the scale they need without moving the price of the underlying asset. Therefore, their capital will flow in large part to the established winner of the sector: Bitcoin.
3. Its stewards are extremely meticulous
Contrary to popular belief, Bitcoin is still in active development. There’s a relatively small staff of highly motivated developers that, in conjunction with the nonprofit Bitcoin Foundation and groups of miners, determine the advancement of the coin’s technology via a laborious and ultimately democratic process.
But, unlike other cryptocurrencies, the tech development roadmap is not exactly intended to turn heads. Instead, it’s meant to avoid breaking anything that works, and to only take action when it’s necessary to protect the coin from a technical threat or value-limiting technical constraint. For an asset that investors look to for value preservation over time, that’s exactly the right perspective. Furthermore, the fact that decisions about the coin are made collectively, and proposed changes to it are analyzed comprehensively before advancing into development, means that the odds of major blunders are low.
The same can’t be said of any of Bitcoin’s peers, even if they’re able to offer flashier technical specifications like faster transaction times, or a roadmap that’s packed with in-demand features for developers. For investors, that makes the asset exceptional, and, as long as Bitcoin’s excellent governance model lives on, it’s a big contributor to the thesis for long-term holding.
