Bitcoin combines long-term upside potential with a surprising amount of downside protection.
As widely anticipated, Bitcoin (BTC -0.68%) is getting a big post-election rally, soaring to a new all-time high of more than $75,000. For the year, it is now up more than 70% (as of Nov. 7), and some investors now suggest it could hit $100,000 by next January.
Among those investors are some high-profile billionaires, including a mix of tech entrepreneurs and hedge fund titans, who have been buying the cryptocurrency throughout the year. If these billionaires are buying it, should you be, too?
The upside potential
Leading the charge is the tech billionaire Michael Saylor, founder and executive chairman of enterprise software maker MicroStrategy (MSTR -0.14%). In July, he predicted that Bitcoin could eventually soar to $13 million by the 2045.
Not surprisingly, he’s now positioning his company to buy as much as it possibly can during the next three years. It plans to buy another $42 billion worth of the digital currency by 2028, adding to its already substantial hoard of 252,200 bitcoins.
And Saylor is not alone among tech billionaires. Jack Dorsey, chief executive officer of Block, now thinks that Bitcoin could hit $1 million by 2030. He’s particularly attracted to its technological features that help to make it the world’s premier digital currency.
Another tech billionaire buying the crypto is Mark Cuban. During the past few months, he has been suggesting that it could soar in value as it gains in adoption and becomes a more important part of the global financial system. In fact, he has even suggested that it could eventually replace the U.S. dollar as the global reserve currency.
Price predictions of $1 million or higher might sound like pie in the sky. But Bitcoin has a long track record of delivering market-beating performance. For more than a decade, it has been one of the top-performing asset classes in the world.
From 2011 to 2021, for example, it delivered annualized returns of 230%, and no other asset class was even close. Last year, Bitcoin was up more than 150% and is now on pace to hit triple-digit percentage gains this year. Of course, past performance is no guarantee of future results, but there’s ample reason to be optimistic about the cryptocurrency’s upside potential.
The downside risk protection
Hedge fund billionaires are also buying Bitcoin, but not for the reasons you might think. They are certainly aware of the long-term potential, but they are just as interested in its unique hedging properties. As they see it, Bitcoin can help protect against economic, political, and geopolitical risk, and that is what helps to make it so valuable to them.
Image source: Getty Images.
Of particular concern is the current situation in the US. As some top hedge fund managers see it, the current $35 trillion debt load of the U.S. government is no longer sustainable. At some point, the house of cards propping up the economy is going to come crashing down. When that happens, hedge fund billionaire Paul Tudor Jones warns, you want to be holding Bitcoin, not dollars.
Other hedge fund managers are much more focused on inflation. From their perspective, the crypto can play a role similar to gold when it comes to hedging against inflation. In fact, as billionaire Stanley Druckenmiller pointed out last year, Bitcoin could actually become more popular than gold as a hedge against inflation, simply because it is a digital asset that can be traded on a 24/7 basis.
What’s next?
Now that Bitcoin has hit a new all-time high of more than $75,000, it’s only natural to ask: What’s next for the world’s most popular cryptocurrency? A high of $100,000 by the time of Donald J. Trump’s inauguration as president in January is certainly on the table right now, especially if he shows signs of following through on his pro-Bitcoin campaign promises.
Meanwhile, investment firm Bernstein is calling for a new high of $200,000 by the end of next year. That’s when things get really interesting, because that’s when you can really start to visualize how Bitcoin’s ascent to $1 million is going to happen. To hit $1 million by the year 2030, it would only need to deliver annualized returns of about 40% per year for the next five years.
Given Bitcoin’s historical track record of delivering triple-digit returns on a regular basis, 40% certainly sounds like an achievable goal. I’m long-term bullish. I agree with the billionaires who are buying Bitcoin right now: A combination of enormous upside potential with significant downside risk protection creates a very compelling investment thesis over the long run.
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