Bitcoin: Can It Be a Long-Term Winner?

Key Points

• Bitcoin's lifetime supply is capped at 21 million coins, giving it inherent scarcity.

• Bitcoin is growing rapidly in terms of institutional adoption.

• While Bitcoin is the top-performing asset of the past decade, past performance is no guarantee of future performance.

• 10 stocks we like better than Bitcoin ›

It's hard to argue with the historical track record of Bitcoin (CRYPTO: BTC). In eight of the past 10 years, Bitcoin has been the top-performing asset in the world. As a result of that performance, Bitcoin is up approximately 48,500% over the past decade.

But, as they say in the world of investing, past performance is no guarantee of future success. Bitcoin may be the top-performing asset of the past decade, but can it also be a long-term winner?

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Bitcoin's scarcity

To understand Bitcoin's long-term appeal, it's important to take its inherent scarcity into account. Only 21 million Bitcoins can ever exist, and nearly 20 million of them are already in circulation. Of those in circulation, an estimated 3.7 million may be lost forever, so the real circulating supply of Bitcoin may be closer to 16.3 million coins.

By way of comparison, other cryptocurrencies typically have billions of coins in circulation, and some even have trillions of coins in circulation. That's why it sometimes seems like investors are hoarding their Bitcoin. There's just not a lot to go around.

Image source: Getty Images.

This is also why many investors often compare Bitcoin to gold. There is a finite supply of gold that can ever be mined on planet Earth, just as there is a finite supply of Bitcoin that can ever be mined using computing power.

Over the next decade, there should be more and more investors scrambling to buy Bitcoin, and that should put upward pressure on its price. It's the Law of Supply and Demand, applied to crypto. That's part of what makes Bitcoin so attractive to long-term investors: Supply will remain constant, while demand seems destined to soar.

Moreover, since there is a hard cap on the total number of coins that can ever be in circulation, there's no way that any central bank or sovereign government can inflate away the value of Bitcoin. Over time, Bitcoin should maintain its value, making it a valuable hedge against inflation.

Institutional adoption

At the same time, there is growing institutional adoption of Bitcoin. There are two ways to think about institutional adoption.

One is from the perspective of institutional investors actively adding Bitcoin to their portfolios. With the launch of the new spot Bitcoin ETFs last year, it's now relatively easy for institutional investors to get exposure to Bitcoin. As a result, in 2024, over $100 billion flowed into these new spot Bitcoin ETFs.

According to estimates from Coinbase Global (NASDAQ: COIN), roughly 75% of institutional investors plan to increase the size of their Bitcoin position this year. Right now, the target allocation percentage for Bitcoin in a portfolio is roughly 1% to 2%. But, over time, that allocation could grow to 5% or even higher. That, too, should put upward pressure on the price of Bitcoin.

The other way to think about institutional adoption is in terms of utility. In other words, what are the use cases for Bitcoin? Are people actually using Bitcoin, or just hoarding their coins?

With that in mind, Cathie Wood of Ark Invest has put together a valuation model that highlights eight different uses for Bitcoin, and how they are projected to grow over time. In a bull-case scenario, all of these will grow over the next five years, leading to even more demand for Bitcoin.

Can Bitcoin really skyrocket in value yet again?

If you examine the price history of Bitcoin over the past decade, one startling fact stands out: Bitcoin appears to be appreciating in price at an incredible rate. It took just four years for Bitcoin to move from $1,000 to $10,000, and then just seven years for Bitcoin to move from $10,000 to $100,000.

If Bitcoin is able to maintain this same type of momentum, it's conceivable that it could increase in value by a factor of 10 once again. In fact, a growing number of investors are now convinced that Bitcoin could hit a price of $1 million within the next few years. According to Coinbase CEO Brian Armstrong, Bitcoin could hit $1 million by the end of 2030.

It's hard to think of another asset that has the same type of upside potential. Bitcoin stands alone as the world's most popular cryptocurrency, and has the growing support of corporations, Wall Street investment firms, and even the U.S. Treasury Department. With support like that, Bitcoin has what it takes to be a long-term winner.

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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.