Could Buying Bitcoin Today Set You Up for Life?

On Oct. 6, the price of Bitcoin (CRYPTO: BTC) hit a record high of $126,270 per token. That 51,229% gain over the previous decade, driven by its growing acceptance among retail and institutional investors, would have turned $10,000 into $5.13 million.

But as of this writing, Bitcoin trades at about $95,000. That pullback was likely triggered by elevated Treasury yields, which stayed high even after the Fed cut its benchmark rates, and a broader retreat from cryptocurrencies and other speculative investments. Should investors still buy Bitcoin today and expect it to generate life-changing gains?

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What's the bull case for Bitcoin?

Bitcoin is mined with the energy-intensive proof-of-work (PoW) consensus mechanism. Its miners use computer chips to validate transactions on its blockchain to earn bitcoins as rewards. Every four years, a halving cuts those mining rewards in half.

In its earliest days, Bitcoin could be mined with standard central processing units. But as mining it became more difficulty with each halving, its miners switched to graphics processing units and even more powerful custom chips.

Today, Bitcoin can only be mined for a profit with application-specific integrated circuit (ASIC) miners. Bitcoin also has a maximum supply of 21 million tokens, and 19.9 million have already been mined. Its last token is expected to be mined by 2140.

That finite supply makes Bitcoin more comparable to gold, silver, and other hard assets than other cryptocurrencies. That's why the Commodity Futures Trading Commission classified Bitcoin as a commodity, and why the Securities and Exchange Commission approved its first spot exchange-traded funds (ETFs) for Bitcoin last January.

Bitcoin bulls expect the token to become a viable hedge against inflation and the long-term devaluation of fiat currencies. As more institutional investors accumulate the crypto, its price could stabilize, rise, and become as widely adopted as gold and other safe-haven assets. More businesses could also start accepting it for digital payments.

Bitcoin is already recognized as legal tender in such countries as El Salvador and the Central African Republic. The U.S. recently launched its own Strategic Bitcoin Reserve, and companies like Strategy continue to hoard the digital coin. Therefore, it could remain resilient even as the other smaller cryptocurrencies fizzle out.

What's the bear case against Bitcoin?

Bitcoin might be gaining momentum as "digital gold," but it still faces long-term challenges. First and foremost, it won't be widely adopted for mainstream payments unless its price stabilizes. No one wants to be the poor guy who paid 10,000 bitcoins for two pizzas back in 2010.

That's why stablecoins, which are usually pegged to the U.S. dollar, could undermine the crypto's bullish case. Dollar-backed stablecoins are designed to always trade at $1 per token, but they can be held without a bank account, used for cheaper and faster cross-border money transfers, and help people preserve their savings in inflation-wracked countries.

They can also be lent out across centralized and decentralized finance (DeFi) platforms to earn higher interest than traditional savings accounts. Those high yields could insulate stablecoins from inflation without exposing their investors to too much risk. While stablecoins won't generate huge gains, they might replace Bitcoin as digital gold.

Another looming problem is the rise of quantum computers, which can process certain computing tasks much faster than standard computers. Many researchers believe that quantum computers will eventually crack the encryption that protects Bitcoin and other cryptocurrencies. If that happens, Bitcoin would lose its value as a safe-haven asset.

Lastly, Bitcoin could be more tightly regulated and taxed as it's more widely adopted by big investors. Those tighter regulations could diminish its appeal as a decentralized currency, and it could make stablecoins -- especially those that are fully decentralized and not actually backed by U.S. dollars -- more appealing.

Could buying Bitcoin set you up for life?

With a market cap of $1.87 trillion, Bitcoin is already the world's third most-valuable commodity after gold ($28.32 trillion) and silver ($2.86 trillion). Therefore, it probably won't replicate its huge gains from the past decade over the next 10 years.

Yet it could still have plenty of upside potential as it becomes harder to mine and it's more broadly accepted as a mainstream commodity. Therefore, I expect it to double, triple, or quadruple over the next decade -- even as it faces long-term threats like stablecoins, powerful quantum computers, and tighter regulations.

I'm certainly not as bullish as Strategy's CEO, Michael Saylor, who claims its price could surge another 22,000% to $21 million and boost its market cap to $632 trillion by 2046. But I believe the world's top cryptocurrency could still generate impressive inflation-beating gains over the next few decades for patient investors who can stomach a lot of near-term volatility. So while Bitcoin alone might not set you up for life, it still deserves a spot in your long-term portfolio.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.