Bitcoin has a unique combination of upside potential and protection against downside risks.

The term “ultimate cryptocurrency” can have different meanings depending on your investment goals, your risk tolerance, and how much you have to invest. But for me, the ultimate cryptocurrency is one that combines explosive potential with a certain degree of protection against losses. I’m also looking for a cryptocurrency with growing acceptance on both Wall Street and Main Street, just to give me more peace of mind.

There are no surprises here, but Bitcoin (Bitcoin 0.19%) is the closest to this definition of the definitive cryptocurrency. If you are thinking about putting $1,000 to work in the crypto market, Bitcoin could be a good starting point. Here’s why.

High potential

Let’s cut to the chase here: the ultimate cryptocurrency should be one with the potential to turn a relatively small investment into an extraordinarily large nest egg sometime in the next decade. And I can’t think of a better cryptocurrency than Bitcoin to make this happen. While past performance is certainly no guarantee of future performance, it is difficult to ignore Bitcoin’s track record.

Over the decade from 2011 to 2021, Bitcoin was the best-performing asset in the world, and it wasn’t even close. During this period, Bitcoin delivered annualized returns of 230%. The next best performing group was the Nasdaq 100 (technology stocks), which returned 20% per year. And Bitcoin’s outperformance story continued into 2023, when it soared 155%. In 2024, Bitcoin is already up 58%, on track for another highly successful year.

With the caveat that Bitcoin is unlikely to replicate this kind of extraordinary performance over the next decade, there could still be a lot more upside ahead. Cathie Wood of Ark Invest, for example, thinks that Bitcoin price could rise to $1.48 million by 2030. And that may be the lower limit of expectations. Michael Saylor, founder and president of Microstrategysuggested that the true value of Bitcoin could be $10 million or more.

Protection against negative risks

You would think that an investment with so much potential for appreciation would also come with an incredible amount of risk. After all, there’s no such thing as a free lunch on Wall Street, right? Admittedly, Bitcoin has a lot of volatility, which means price swings can be quite dramatic. Therefore, you would not be wrong to see this as the “price” you pay for Bitcoin’s performance.

But Bitcoin has a unique risk-reward profile. Consider, for example, that some investors consider Bitcoin to be the best hedge against inflation, even better than gold. Furthermore, a growing number of portfolio managers consider Bitcoin will be a “safe haven” asset when things take a turn for the worse in the broader market or when geopolitical risk emerges on the world stage.

There are several reasons for this. One of them is Bitcoin’s historical lack of correlation with other asset classes. Another is the Bitcoin algorithm, which carefully controls the rate of creation of new Bitcoins. The ultimate goal of this algorithm is to preserve the value of Bitcoin in the long term by making it resistant to inflation. Every four years, for example, the rate of creation of new Bitcoins drops by half, in an event known as reduce by half.

Mainstream popular acceptance

There is one more area where Bitcoin really shines: its growing acceptance on both Wall Street and Main Street. The best example of this is the recent introduction of Spot Bitcoin exchange-traded funds (ETFs) in January. There are now nearly a dozen new Bitcoin ETFs in sight, making Bitcoin as easy to buy as your favorite tech stock. 30 billion dollars have already been channeled into these new ETFs in less than six months.

Image source: Getty Images.

But you don’t have to limit yourself to these ETFs. You could, for example, choose to buy Bitcoin through a cryptocurrency exchange like Coinbase Global. Until January, buying Bitcoin through an exchange was one of the most popular options for cryptocurrency investors.

There are other options too. As Bitcoin is the most popular cryptocurrency, it is available for trading on platforms such as PayPal It is Robinhood Markets. Heck, even my local supermarket has a Bitcoin ATM where you can exchange fiat currency (i.e. dollars) for Bitcoin.

Don’t forget about diversification

As you may have guessed, I am very optimistic about Bitcoin’s long-term prospects. But I also recognize that a crypto portfolio 100% invested in Bitcoin is very risky. You shouldn’t put all your eggs in one basket. So definitely consider portfolio diversification before investing $1,000 in Bitcoin.

That said, Bitcoin remains the definitive cryptocurrency to buy right now. If you want to build future wealth, Bitcoin should be at the top of your list of potential investment options.

Dominic Basulto has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin, Coinbase Global, and PayPal. The Motley Fool recommends the following options: June 2024 short calls for $67.50 on PayPal. The Motley Fool has a disclosure policy.

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