This Cryptocurrency Outperformed Every Asset Class in 2023 and 2024. Here's Why It Can Continue Dominating Through 2035.

Key Points

• While every asset class performed well over the last few years, Bitcoin trounced everything.

• Institutional investors are increasing adoption with easier options and friendly regulations.

• Another factor may play an even bigger role in this cryptocurrency's continued rise.

• 10 stocks we like better than Bitcoin ›

The last few years have been absolutely fantastic for investors. Almost every major asset class was positive in 2023 and 2024.

Stock investors saw the S&P 500 produce a total return of 26% in 2023, only to follow it up with a 25% total return the following year. Those who added gold to their portfolio have seen their investment grow over 90% since the start of 2023. The U.S. bond market has even held up well amid expectations for rate cuts, producing cumulative total returns around 13% in that time.

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Amid all the monster returns investors saw in 2023 and 2024, one asset stood well above the crowd. Bitcoin (CRYPTO: BTC) returned 156% and 121% in 2023 and 2024, respectively. Granted, that came after a terrible 65% slide in 2022. Still, Bitcoin has dominated every asset class over the last 10 years.

Image source: Getty Images.

Investors may think Bitcoin's strong performance isn't replicable, now that it has a $2.2 trillion market cap. And while it might not produce triple-digit annual returns over the next decade, it can still produce returns much higher than any other asset class through 2035.

Bitwise Asset Management recently published a report with a base case for the crypto reaching $1.3 million by 2035. That's a 28% annual return, well above expectations for every other investable asset. Here's why the analysts are so bullish.

Institutional investors are just getting started

At the top of Bitwise's thesis are the expectations for growing adoption by institutional investors. The analysts see 1% of all institutional assets going toward Bitcoin, which would represent about $2.2 trillion in 2035.

It's important to note Bitwise may be biased. Its primary business is managing investment funds specializing in cryptocurrency. It's the company behind one of the largest spot Bitcoin exchange-traded funds on the market, the Bitwise Bitcoin ETF.

On the other hand, one can also see that forecast as Bitwise putting its money where its mouth is, since Bitcoin ETFs are a key vehicle driving institutional adoption.

It's also worth pointing out that Bitwise isn't the only group of analysts expecting strong growth in institutional investments flowing into Bitcoin. It's also at the core of ARK Invest's bullish thesis and that of many other analysts.

Bitwise analysts point out that $170 billion worth of assets have already flowed into Bitcoin ETFs. And another $2 trillion in inflows could nearly double the crypto from its current price.

There are plenty of reasons to expect growing institutional adoption. The introduction of Bitcoin ETFs is just the start, offering a simple way for institutional investors to gain access to the asset class within normal brokerage accounts.

Moreover, regulators and lawmakers have started providing clarity on the rules for owning and trading cryptocurrency, and they have been particularly friendly toward it. The U.S. government even started its own Strategic Bitcoin Reserve.

But institutional adoption isn't the only factor that could drive the digital coin's value higher over the next decade. In fact, Bitwise sees a much bigger catalyst driving the gains.

This market could be 10 times bigger for the cryptocurrency

The biggest factor propping up Bitwise's 2035 Bitcoin outlook is its expectation for adoption of it as a store of value. Specifically, it sees the market size for assets with built-in inflation protections like gold and Bitcoin more than tripling between now and 2035.

And it expects Bitcoin to account for 25% of those total assets. That represents almost $23 trillion worth of assets.

The analysts say we don't need to see super-high inflation for the value of inflation hedges to rise dramatically over the next 10 years. But with the growing national debt and continual deficits year after year, devaluing the U.S. dollar seems like an inevitability. That should push demand for assets like Bitcoin.

We've already seen the impact of the trend on gold, an asset that has around 11 times the market cap of Bitcoin. As mentioned, the price of gold is up more than 90% since the start of 2023. With the increased ease of investing in Bitcoin and the friendly regulatory environment, it's reasonable to expect more of the safe-haven assets to shift toward Bitcoin.

The token's price is further supported by the constraints of its fixed supply. No matter how high the price climbs, the supply can't increase any faster than deemed by the Bitcoin algorithm.

On the other hand, if the price of gold rises, miners will increase production, even if operational costs are higher. The supply of Bitcoin is currently increasing at a rate of about 0.8% per year, and that will fall to about 0.4% at the next halving in 2028.

Bitwise's forecast for the growth in store-of-value assets seems aggressive, but it's likely directionally accurate. Investors should expect growing adoption of Bitcoin as a hedge against inflation, especially after the high inflation rates of the last few years.

Putting it all together with various other factors adding to demand presents a very bullish picture for Bitcoin. That said, it remains a very risky asset, and there's a wide disparity among the bear case, the base case, and the bull case. Keeping your allocation to this unproven asset small may be wise, even if it holds tremendous potential for growth.

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Adam Levy has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.