Bitcoin: Bull versus Bear | The motley fool

Bitcoin (BTC 1.37%) represents one of the most explosive investments in history. The cryptocurrency has grown over 3,900% in the last decade alone. However, the market-leading cryptocurrency has also seen a significant pullback in valuation and is now trading around two-thirds off its peak.

What’s next for Bitcoin? Read on to see two Motley Fool contributors describe the bullish and bearish cases for the world’s most valuable cryptocurrency.

Stacks of Bitcoins.

Image source: Getty Images.

Bull case: Bitcoin is a pillar of long-term strength

Anders Bylund: I am not a bitcoin maximalist. In my view, every portfolio benefits from a good dose of diversification. In my own collection of cryptocurrencies, for example, Bitcoin today represents only 27% of the total portfolio value.

However, Bitcoin plays a specific role in my crypto holdings, and it’s an obvious decision to build your long-term crypto investments around this pillar of strength.

Bitcoin has proven itself over the years. What started as a small experiment in secure digital accounting has proven its resilience against hacker attacks and rival cryptocurrencies. Many of the biggest crypto rivals in the market today started life as clones of Bitcoin’s code, changing only a few of the key system settings. For example, the popular Dogecoin The cryptocurrency is a clone of a Bitcoin clone, running a different mining algorithm and devoid of Bitcoin’s lifetime limit on the number of digital coins in existence.

Prank currencies like Dogecoin should fall by the wayside over time as they were explicitly designed to be worthless in the long run. In contrast, Bitcoin’s stingy design parameters add up to a clumsy payment processor but a potentially solid vehicle for storing long-term monetary value.

The hard-coded limit of 21 million Bitcoins ensures that the cryptocurrency will be scarce in the long term. The last coin should be mined before the year 2140, then the minting rewards will be replaced by transaction fees. If cryptocurrencies continue to expand their financial functionality and global reach, then each bitcoin could be worth millions of dollars. Experts say Bitcoin’s total market value could exceed $300 trillion then, compared to just $450 billion today. That’s a potential gain of 67,000%. Even though the final value might be well below this audacious goal, the profit potential is still huge.

So, as long as you see a future for blockchain ledgers and digital assets, it seems a bit silly to leave Bitcoin out of your wallet. Today’s volatile youngster is expected to grow into a rock-solid platform of value over the next two decades.

Bear case: Bitcoin’s value proposition is confusing

Keith Noonan: Bitcoin was originally championed by many as a decentralized payment method – a literal cryptocurrency. However, it was never really used as a currency, and it doesn’t seem to make much sense as such. Even though transaction times and fees have improved, the token is simply too volatile to be a good medium of exchange, even when immediately converted into fiat currency upon receipt.

The popular thesis as to why Bitcoin is worth holding has shifted to the fact that the token is a form of digital gold that typically increases in value at a much faster rate. As long as the price of the token continues to rise over the long term, why wouldn’t you want to own it? But some elements of the decentralized store of value thesis seem fragile.

Bitcoin has been touted as an inflation hedge and a bulwark against stock market and economic volatility. However, the token and the cryptocurrency market as a whole trade closely with stock market movements and economic news. For example, it seems clear that the Federal Reserve’s interest rate hikes have created significant selling pressure for Bitcoin.

And while the adoption of cryptocurrency among institutional investors has helped the coin go mainstream and increase its value, it has also made the coin increasingly connected to financial systems where cryptocurrency is still championed. as an alternative. With bitcoin becoming more integrated into the broader financial system, regulatory risk has also increased.

The main mechanism driving the price up seems to be FOMO: the fear of missing out. This may prove enough to send Bitcoin’s valuation back to new highs, and there is certainly a big brand and a dedicated community behind the token, but valuing the cryptocurrency is a speculatively heavy task.

Should You Buy Bitcoin?

Bitcoin has driven cryptocurrency adoption and is positioned as the undisputed market leader. However, it remains a volatile and relatively risky investment. The cryptocurrency looks a lot cheaper after recent selloffs and could still have huge upsides, but you should keep your personal risk tolerance in mind when evaluating whether to add the token to your portfolio.

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