Where Will Bitcoin Be in 5 Years?

It would take more than a few minutes to find an asset that has delivered better returns than Bitcoin (CRYPTO: BTC) over the last five years. Meanwhile, the world’s most valuable cryptocurrency increased by 1,000%. By comparison, the tech-heavy Nasdaq-100 index is up 128% in that period.

Bitcoin has made great progress, especially in the last year and a half. But things are cooling off, with the peak price being 13% below its peak price (as of the morning of May 5). Investors likely see this as a potential buying opportunity.

Where could Bitcoin be when we look at the next five years?

a unique being

I think the core value proposition of Bitcoin is that it is a scarce asset. There will only be 21 million coins in circulation with a planned inflation rate that has not yet been replaced in Bitcoin’s roughly 15-year history. As the demand for a fixed asset increases, its price also increases.

This is in stark contrast to fiat currencies, Bitcoin’s main rival. These currencies are constantly losing their purchasing power due to the irresponsible fiscal and monetary policies implemented, especially in the USA. Bitcoin’s structure seeks a more controlled solution.

Another factor driving Bitcoin’s price is the emergence of a more robust financial services infrastructure. The latest development on this issue was the approval of spot ETF products in January. So far these have been extremely successful in driving capital flows into Bitcoin. Additionally, the Securities and Exchange Commission’s decision to approve ETFs can be viewed as a regulatory stamp of approval.

There are many businesses, from Wall Street banks to junk start-ups, and they are all working on different Bitcoin-related products and services. Therefore, it is easy to believe that this asset will feature in more portfolios over time.

I’m pretty sure that five years from now the price of Bitcoin could be twice what it is today. If history is any indication, that might be a pretty conservative perspective.

Risks to keep in mind

It is impossible not to be bullish after learning some of the features of Bitcoin. This is a special asset worth having. And I believe it has significant upside over the long term. However, investors need to be careful about all kinds of risks.

The biggest risk factor is that the US government bans Bitcoin within its borders, essentially making it illegal to own or mine crypto. This would essentially crowd out a large pool of capital and cause demand for Bitcoin to decrease. But as Bitcoin’s value continues to rise and more of the wealthy and political classes begin to own Bitcoin, the likelihood of a complete ban becomes less likely.

The story continues

Another risk that we cannot ignore is more technical in nature. Perhaps a confirmed upgrade to the Bitcoin blockchain could create a bug that exposes everyone’s private keys and renders the network worthless. Or the move towards quantum computing would allow Bitcoin’s cryptography to be cracked, again weakening the security of the network.

But to help mitigate these potential threats, it’s best to know that Bitcoin nodes will not approve any updates they think could cause damage. When it comes to quantum computing, there is a high probability that Bitcoin developers will create a way to increase the security of the network.

Once you understand these risks, you can set more realistic expectations. While I don’t believe Bitcoin’s returns over the next five years will be similar to the past five years, it’s definitely worth taking a closer look at this cryptocurrency for your own portfolio. Remember to have a long-term mindset and be prepared for the inevitable ups and downs.

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Neil Patel and his clients have no positions in any of the stocks mentioned. The Motley Fool has positions in Bitcoin and recommends it. The Motley Fool has a disclosure policy.

Where Will Bitcoin Be After 5 Years? originally published by The Motley Fool