Could Buying Bitcoin Today Set You Up for Life?

Key Points

• Bitcoin has so far tended to go up in value over time.

• Buying it and expecting it to be a lottery ticket is folly.

• Accumulating it gradually is the winning move, if you can make it.

• 10 stocks we like better than Bitcoin ›

Bitcoin (CRYPTO: BTC) is an asset that's engineered to be scarce, easy to hold for the long haul, and, increasingly, simple to access in a handful of different types of accounts.

One key question for investors is thus whether steady accumulation of Bitcoin, sustained for years, can actually shoulder a meaningful part of your financial future. The short answer is yes, so long as you recognize it as a pillar of wealth-building rather than a magic carpet ride to an unguarded vault of riches. Here's what the right approach looks like in practice.

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This asset is for the diligent accumulators

As you may know, Bitcoin's supply is capped at 21 million coins. About 20 million of them are already circulating, which means most of what will ever exist is already out in the world. So anyone who wants to buy it in the future is probably going to need to buy it from an existing holder rather than from a miner that just produced it.

On that note, new issuance of the coin via mining also slows over time via the halving schedule. Since April 2024, the total number mined per day has been around 450 coins. That's significantly lower than the daily demand from exchange-traded funds (ETFs), Bitcoin treasury companies, asset managers, and financial institutions. Therefore over the long term, prices are biased to the upside, as supply simply cannot match demand.

And that's also a big reason why a $1,000 investment in Bitcoin 10 years ago would today be worth more than $468,000.

Such returns are doubtlessly one of the things leading investors to ask if an investment in the coin could be sufficient to set them up for life. Of course, you can't count on this asset to replay its past performance, but the point is that its supply dynamics have been a very strong driver of its price appreciation, and they're not about to loosen up at all.

Nonetheless, despite its generally upward trajectory, the coin has also endured brutal declines, and it will endure them again. Since 2014 there have been multiple declines greater than 50%, with the largest episodes averaging near 80%. There won't be much point in buying it if you can't hold it through those plunges and buy more when the coin is cheaper. Thankfully there's an easy way to inoculate yourself against that risk, which I'll get to in a moment.

Making this coin into a wealth strategy

If your goal is for your investments to set you up for life, consider your investment process and understand that formulating predictions is distinct from executing a smart plan. Think less about reaping the returns that would allow you to retire immediately and more about investment strategies that can be sustainable over long periods to eventually get to the destination you want.

Dollar-cost averaging is the workhorse tool for all wealth-building strategies, and that's the case here as well. It trades the improbable prospects of properly timing the market for the benefit of having a protracted period of time to be in the market. A simple plan that invests the same amount every week or month builds discipline and makes volatility an ally by buying more when prices fall. Even $100 on a weekly basis is a good place to start, so long as you can keep doing it for years on end without breaking a sweat.

Time in the market is especially important because Bitcoin's issuance schedule and adoption cycles tend to play out over years. Halvings reduce new supply roughly every four years, which historically tighten the float available for public trading and supports subsequent bull runs. Assuming that pattern persists, having a multiyear window gives the investment thesis room to work. The more patient you can be, the better; think on a 10-year timeline for accumulating this asset, if you can.

Position sizing and portfolio diversification will matter along the way. Ideally, Bitcoin is a position you hold within a diversified plan rather than being the sole constituent. A modest allocation of between 1% and 5% of your assets can compound in value meaningfully over time without inflicting risk that's difficult to bear.

In other words, Bitcoin can help to set you up for life, but only if you set yourself up to keep investing in it when it is least comfortable to do so. Follow the plan diligently, and it will deliver.

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Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.