Bitcoin (CRYPTO: BTC) has seen a remarkable rise over the past decade, with its price increasing about 20,000% since September 2013. This translates to a compound annual growth rate (CAGR) of 70%, outperforming what investors in the stock market could have achieved. As we look towards the future, there is a possibility that Bitcoin's market cap could double by 2028, making it a member of the trillion-dollar club.
In recent years, Bitcoin has attracted greater interest from institutions, a significant shift from its early adoption which was primarily by individuals, mainly computer scientists intrigued by this new form of internet money. Today, governments and major corporations own Bitcoin, and publicly traded mining companies have emerged, marking a huge leap from Bitcoin's inception when even a regular laptop could process transactions to the network.
Investors' attention is currently focused on the potential approval of Bitcoin spot exchange-traded funds (ETFs). Applications have been filed by well-known asset managers such as BlackRock (NYSE:BLK) and Fidelity. The introduction of these ETFs would enhance accessibility and convenience for investors seeking exposure to this digital asset, further legitimizing Bitcoin as a financial asset.
Regulatory clarity is another critical aspect that needs addressing. Gary Gensler, chair of the Securities and Exchange Commission, has previously stated that he views all cryptocurrencies besides Bitcoin as securities requiring extensive regulatory oversight. By categorizing Bitcoin as a commodity, it can be argued that its creation and existence haven't violated any laws, primarily because there's evidence that it isn't controlled by a single entity.
The approval of spot ETFs and a clearer regulatory framework would undoubtedly reduce the risk associated with owning Bitcoin. This is particularly relevant in light of increased interest in regulating the industry following high-profile incidents like the FTX blowup last year.
For Bitcoin's market cap to double in the next five years, its price would need to rise at a roughly 15% CAGR. Although this seems conservative based on Bitcoin's past performance, it is still a forecast that could outperform the stock market. The developments outlined above are some of the key factors that could work in Bitcoin's favor in the near term.
Bitcoin's longevity also adds to its credibility. Having been around for almost 14 years without being hacked, the Lindy effect suggests that the life expectancy of a new technology increases with each passing year it remains relevant. The longer Bitcoin stays around, the less likely it is to cease to exist.
Despite the potential for growth, investors must be prepared for volatility. Bitcoin has experienced multiple drawdowns of greater than 50% throughout its history, something that likely won't change going forward. As part of a well-diversified portfolio, a 1% stake in Bitcoin might make sense for investors willing to accept the associated risk.
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