It May Be a Wild Ride, But This Cryptocurrency Could Generate Serious Wealth. Here's Why | The Motley Fool

Cryptocurrency has become a mainstay investment for younger investors. According to research by The Motley Fool, roughly 70% of millennials and more than half of Gen Z investors surveyed are at least somewhat likely to own cryptocurrencies. About 75% of crypto buyers view it as an investment, not some quick-money gamble.

However, cryptocurrencies have proven very volatile, which can test even the most unflappable investors.

There are many cryptos, but Bitcoin (BTC 1.68%) remains a top option for long-term investors.

Here’s why Bitcoin could make you a ton of money over the long haul.

It’s already done it

Cryptocurrencies are a little different from stocks. Stocks represent businesses with intrinsic value, so stock prices are influenced over time by how the underlying business performs. Cryptocurrencies depend solely on supply and demand because they don’t represent anything. Many cryptos serve a purpose that can create demand, but their prices ultimately depend on how much someone is willing to pay for them.

That makes Bitcoin’s long-term performance meaningful. In 2021, there was a bubble due to zero-percent interest rates that artificially increased demand for almost every speculative asset. Most cryptocurrencies haven’t revisited those 2021 highs since the bubble popped in 2022, but Bitcoin has.

Bitcoin Price data by YCharts.

What does this mean? Demand for Bitcoin has grown over time, supporting higher prices. Bitcoin has outperformed the stock market as an investment over the past five and 10 years. A $1,000 investment made a decade ago is worth $118,000 today. Although nobody should assume those returns will continue, Bitcoin’s long-term performance underlines its strong demand, a contrast to most cryptocurrencies.

Can it keep going?

Bitcoin is an anti-inflationary asset. Miners constantly create new bitcoins, but the pace slows as the supply grows. The ultimate maximum supply is 21 million coins (about 19.8 million now circulate). Limiting the supply supports higher prices as demand for Bitcoin grows.

If demand for Bitcoin rises faster than the supply, Bitcoin’s price should go up.

But that’s not all. Bitcoin’s price is in U.S. dollars, the supply of which is constantly growing. Inflation weakens the dollar, which, all else being equal, can boost Bitcoin’s price. These two factors could push Bitcoin’s price higher over time, though investors fiercely debate Bitcoin’s long-term price target. Ark Invest’s Cathie Wood, for example, has a $3.8 million price target for 2030, though that’s clearly an outlier.

Ultimately, nobody knows Bitcoin’s future price, so it’s best to concentrate on what might drive demand higher. The price will likely follow along.

Should investors buy Bitcoin today?

If there’s one thing you can count on, it’s volatility. You can see below that Bitcoin routinely drops 10%, often falls 30%, and can decline over 60% from its high at times.

Bitcoin Price data by YCharts.

Remember, Bitcoin doesn’t represent any underlying asset or business, so there are no guardrails per se when wary investors start selling, or greedy investors won’t stop bidding prices up.

Thus, the best investment strategy for Bitcoin is to buy slowly and often, a technique known as dollar-cost averaging. Regularly buying Bitcoin can help you build an investment at various price points, resulting in a blended average in the middle. You won’t buy at the top or the bottom, but you should have plenty of room for investment returns if Bitcoin continues performing anything like it has in the past.