If you think about it, the "ultimate" cryptocurrency would offer market-beating returns with remarkable consistency, act as a long-term store of value, be widely accepted globally, and be approved by government regulators. And it would be so easy to buy and sell that anyone could do it, even without sophisticated knowledge of how cryptocurrencies work.
It's a tall order, of course, but the only cryptocurrency that comes close to meeting all of these conditions is bitcoin (CRYPT: BTC). As we will see below, bitcoin It might have the best risk-reward profile of any cryptocurrency you can buy today.
Bitcoin's history of delivering superior returns
Let's start with the amazing returns of Bitcoin. Since 2013, Bitcoin has risen a remarkable 40,000%. In the decade from 2011 to 2021, Bitcoin was the best-performing asset in the world, and it wasn't even close. Bitcoin generated nearly 10 times the returns of its closest competitor, the tech-heavy Nasdaq 100.
While it is true that Bitcoin had a disastrous 2022 (it lost almost 65% of its value), it returned with a vengeance in 2023, when it once again became the best-performing asset class in the world. And once again, it wasn't even close, with Bitcoin up over 150% over the year. While past performance is certainly no guarantee of future returns, even the most skeptical must admit that Bitcoin has amassed a remarkable track record over a decade.
Bitcoin as a store of value
In terms of its overall risk-reward profile, Bitcoin continues to act as a long-term store of value for investors. Simply put, that means that Bitcoin will thrive in both inflationary and deflationary economic environments. It also means that in times of maximum economic uncertainty, Investors are likely to view Bitcoin as a โsafe havenโ asset.. We saw this in early 2023, when a series of regional bank failures led investors to move their money into Bitcoin.
Throughout its history, Bitcoin has often been referred to as โdigital gold,โ and rightly so. Bitcoin's total lifetime supply is capped at 21 million coins. This creates a real scarcity effect on the market, especially since there are already 19.6 million coins in circulation.
Conceptually, it's a bit like thinking about the world's physical supply of gold: at some point, the world's gold miners will run out of gold to mine. The same goes for Bitcoin: there is no magic central bank to create more Bitcoin once we reach 21 million coins.
Additionally, an algorithm carefully controls the rate at which new Bitcoins can be produced. Since the rate of new supply falls by half every four years, this ensures that Bitcoin actually becomes more deflationary over time. That's exactly what you want to see as an investor if you're looking for an inflation hedge.
How do you invest your $1,000?
So what's the best way to invest your $1,000 in Bitcoin? Until January of this year, the answer would have been to go to a major cryptocurrency exchange, sign up for an account, and purchase Bitcoin for your account. While $1,000 is not enough to buy a full Bitcoin (worth $40,000 at current prices), you can buy a fractional Bitcoin. In your account, this will appear as .025 BTC.
However, on January 10, the Securities and Exchange Commission finally approved nearly a dozen new Bitcoin spot ETFs. These allow you to purchase Bitcoin through a traditional ETF structure. Right now, the two ETFs that have been most popular with investors are the iShares Bitcoin Trust (NASDAQ:IBIT) and the Fidelity Wise Origin Bitcoin Fund (NYSEMKT: FBTC).
They are popular because they have near-zero expense ratios (0.25%) and are backed by two titans of the investment world: Black Rock (NYSE: BLK) and loyalty investments. For $1,000, you can purchase about 50 shares of the BlackRock ETF or about 30 shares of the Fidelity ETF.
Bitcoin in the long term
As described above, Bitcoin offers the optimal combination of risk and return of any major cryptocurrency. While Bitcoin is by no means a โsafeโ asset, it does possess certain inherent properties that make it much safer than rival cryptocurrencies. It also has a strong track record of outperformance for over a decade. For that reason, I will continue to buy and hold Bitcoin for the long term. I can't think of a better way to invest $1000 in cryptocurrency right now.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.
The definitive cryptocurrency to buy with $1000 right now was originally published by The Motley Fool
