Is Bitcoin the Most Compelling Digital Asset for Long-Term Investors?

In the crypto sector, Bitcoin (CRYPTO: BTC) is the asset that everything else revolves around. From its central role as the main store of value to its many influences on investor lingo as well as their investing habits, the big orange coin is simply the king of crypto -- it always has been, and, if its evangelists are right, it always will be.

But for those of us who aren't diehard Bitcoiners, whether Bitcoin deserves its elevated status for the next several decades is debatable. With that in mind, it's worth examining what makes Bitcoin uniquely durable, and which elements of its investment thesis still deserve skepticism.

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It has a few foundational advantages that can't be replicated easily

Today, the total cryptocurrency market value sits around $3.1 trillion. Bitcoin accounts for roughly 56% of that, with a market cap near $1.7 trillion; its sheer size makes it likely to stay relevant moving forward. The majority of the capital entering the digital asset sector still flows toward Bitcoin before it touches anything else, though in the last couple of years, a plethora of different stablecoins have quickly become a heavily favored secondary option, which could eclipse Bitcoin someday.

Its supply architecture is another differentiating feature that sets it apart from most other cryptocurrencies. The protocol enforces a hard cap of 21 million BTC, of which approximately 19.9 million are already circulating. Future halvings will continue to slow the flow of new supply until new issuance becomes almost negligible, and then eventually stops altogether, exacerbating the scarcity and sending prices higher and higher. In contrast, many other crypto assets have an uncapped supply, or a supply that's capped but highly concentrated in the hands of key insiders rather than common investors.

Compared to other coins, Bitcoin's future is far less contingent. Most competing projects implicitly rely on Bitcoin continuing to serve as crypto's all-in-one benchmark, reserve asset, and macro barometer. If Bitcoin disappeared, the rest of the ecosystem would lose its measuring stick.

Patience is a requirement with this asset

The most potent aspect of Bitcoin's investment profile is temporal. Its supply curve changes slowly, predictably, and in ways that reward long-term patience. That's what makes it favorable for traditional financial institutions to buy and hold.

Exchange-traded funds (ETFs) and financial institutions accelerate the coin's scarcity effect. As those players now hold more than 6% of all existing Bitcoin. Importantly, these investors typically operate on multi-decade horizons, meaning those coins are unlikely to return to the open market anytime soon.

This creates a setup in which even moderate increases in demand can compound meaningfully in value when stretched over long periods. Assuming digital assets remain part of the financial infrastructure and there is no severe shock to global liquidity, Bitcoin's share of institutional portfolios is likely to grow incrementally as allocation guidelines continue to evolve. That means it likely has a sunnier and sunnier future the further you look into the future.

Still, any sober analysis must acknowledge the real risks; Bitcoin's volatility remains extreme. No amount of believing in the long-term narrative can make those swings emotionally easy 100% of the time. Furthermore, the coin lacks features like smart contract support and privacy capabilities, which have enabled some of its peers to flourish, and it probably won't grow as much in the future as it did in the past. And, while it's deeply entrenched at the moment, it is fully possible that another cryptocurrency could come along and unseat it over the very long term if it offers the same mixture of scarcity properties alongside other key features that investors are looking for.

So, is Bitcoin the most compelling digital asset for long-term investors?

The answer is unambiguously yes, and there isn't any other asset that comes close. The right approach is to buy and hold it patiently, and treat other cryptocurrencies as optional and far riskier complements if you decide to dabble in them at all.

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