Bitcoin can be a tool for building long term wealth
Bitcoin might be a volatile digital asset, but it enables investors to build wealth, especially if they want to hold it in their portfolios for a long time.
Adding cryptocurrencies to an investment portfolio for diversification is a play that gained traction in the last few years among those looking for ways to grow wealth. People take advantage of the resources that teach them how to buy Bitcoin to learn how to use cryptocurrency to diversify their portfolios and boost their income.
History has shown investors that buying cryptocurrencies can deliver incredible returns. However, they need to be prepared for bear markets, as the one the sector is going through at the moment, that could wipe out the investment capital in a couple of months. Only investors with well-put-together plans can handle these situations.
Short-term investing can prove fruitful in some instances, but the investors looking for more significant gains enter the crypto market in the long run. Different strategies work for different investors. In this blog, we discuss why investing in Bitcoin is a smart move if you want to build wealth in the long run.
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But first, let’s figure out what long term Bitcoin investing is
A school of thought in investing recommends entrepreneurs approach this as a long-term game. The general rule of long-term investing is to put money into a digital asset like Bitcoin and keep it until its price appreciates above the value you acquired the asset at.
When adding Bitcoin to your portfolio and adopting the long-term investing approach, you hold on to it for at least a couple of years. In the crypto sector, investors use the term HODLing (Hold on For Dear Life) to refer to the technique. Therefore, with an investment horizon larger than a year, you know what steps to make and strategies to adopt.
Considering this strategy involves a longer time horizon, in the context of buying Bitcoin, you should be aware of what it’s meant to do and research its vision and long-term goals. If they work for you, the investment will bring returns.
However, we must warn you that the returns won’t come without some bad days. The present bear market is such a bad period when you need to resist the temptation to sell your digital assets to limit your loss. Expect days, weeks, or even months when you witness notional losses on your books before your asset breaks into a profitable zone. During all these moments, you need to have the conviction that Bitcoin has a strong future and trust the team’s vision.
What kind of investment is Bitcoin?
After over 10 years of existence, crypto enthusiasts still debate the kind of investment Bitcoin is. They all agree that owning digital currencies is different from owning stock in a company because it doesn’t generate revenue by selling services or products. Bitcoin doesn’t have a board of directors, CEO, or a centralised group to hold accountable when it fails to reach its goals.
Gary Gensler, the Securities and Exchange Commission Chair, stated that some digital assets have the necessary features of securities while others, like Bitcoin, are commodities. Commodities are usually associated with raw materials like milk, grain or metals. Other finance experts define Bitcoin as a currency that can be used to pay for services and goods. However, it’s crucial to note that not all businesses accept Bitcoin payments because crypto payments are far from being a widespread practice.
Why is Bitcoin a good long-term investment?
Bitcoin advocates often refer to the first digital currency as digital gold, but does it mean it’s also a profitable long-term investment?
One of the main reasons why Bitcoin is compared to gold is that they both held their value during challenging economic times. Finance experts have well documented this feature, and even if they concluded that gold offers the best protection historically, they also state that Bitcoin is a reliable store of value.
If we look behind, we notice that Bitcoin never took more than three or four years to bounce back from bear markets and surpass previous high values. Therefore, Bitcoin could be a better store of value, compared to other assets. Charts show that Bitcoin’s value increased 311% over the last two years, while gold registered a gain of 21.84% during the same timeframe.
In a world where the cost of living is spiking to levels that the average individual cannot handle, investing in a digital asset that can outpace inflation rates could boost wealth in the long term.
Many investors fear adding Bitcoin or any other cryptocurrency to their portfolios because they’re volatile, and their prices declined in 2022 to painful lows. However, Bitcoin, even during challenging times, the oldest digital coin, offered more upside to investors if they adopted a multi-year time horizon.
Finance experts state that Bitcoin might mirror gold during geopolitical uncertainty. Gold was often labelled a crisis commodity because it holds its value even during geopolitical uncertainty. Investors usually buy gold in moments of global tension because when the economy enters a recession phase, its value goes up.
Another reason why Bitcoin is a good long-term investment is that it’s deflationary and scarce. The cryptocurrency has a fixed supply of 21 million tokens that will even be mined and put in circulation. Everyone is aware of the pace of Bitcoin issuance. Also, the public nature of blockchain technology allows everyone to locate and verify each Bitcoin at any given time. On the other hand, it’s impossible to locate and validate each store of gold on the planet, and no one can tell for sure how large its supply is. Considering this characteristic, Bitcoin always wins the scarcity debate.
How to decide whether to invest in Bitcoin in the long term?
As an investor, picking the ideal asset to add to your portfolio is challenging. The main reason behind the decision is that there are several cryptocurrencies to choose from. But let’s not forget that Bitcoin performs the best and is the largest digital currency by market cap.