After losing 64% of its value in 2022, Bitcoin (BTC -1.20%) has been on an absolute tear this year. As of this writing, the leading digital asset has soared 107% in 2023. And after the past couple of weeks, Bitcoin is now knocking on the door of $35,000.
It's easy to get caught up in a hugely positive price swing, with the intention of trying to ride the strong momentum. But before doing that, investors should really take the time to understand more about what makes Bitcoin a good investment opportunity.
Here are three must-know reasons this top cryptocurrency is a screaming buy right now.
1. Its absolute scarcity
One of Bitcoin's defining characteristics is that there will only ever be 21 million coins in circulation. There is a hard cap on the supply that is etched into the cryptocurrency's computer code. And unless the majority of the crypto's stakeholders -- including users, nodes, miners, and developers -- all agree to change this supply constraint, this is basically set in stone.
A fixed supply is valuable because when demand rises, the price should as well; there is no way for supply to increase to match heightened demand. That's why Bitcoin's price has skyrocketed throughout its history.
This reality is in stark contrast to fiat currencies, like the U.S. dollar or the euro, which are constantly losing purchasing power because of ongoing money printing and inflation. In fact, the purchasing power of $1 has dropped more than 95% since the Federal Reserve was created in 1913.
Some investors might view gold as having absolute scarcity, but this is inaccurate -- the supply does increase every year. And let's say that demand for the precious metal was to jump significantly in short order. In this scenario, it would be economically feasible for mining companies to try to extract gold from difficult-to-reach areas, so there is the possibility that supply could increase to meet demand.
2. Its ownership by key figures
Since its launch roughly 15 years ago, Bitcoin has been adopted by individuals mainly interested in computer science, cryptography, and privacy. But these days, because its market cap is $663 billion and there is a growing list of financial products and services supporting it, the digital currency is slowly finding itself more and more in the mainstream.
Some prominent business figures have publicly announced their bullishness for the asset. Michael Saylor, billionaire founder of MicroStrategy, has purchased billions of dollars of Bitcoin, which his corporation holds on its balance sheet. Jack Dorsey, another billionaire founder himself, is focused on helping to advance Bitcoin adoption through his payments company Block, which also holds some of it on its balance sheet.
Fund managers like Bill Miller and Paul Tudor Jones both own Bitcoin in their personal holdings. And famed investor Cathie Wood, who heads up Ark Invest, is probably the most bullish on it. Her firm's base-case analysis suggests that the price could hit $683,000 by 2030, up 20-fold from today's level.
3. Its near-term catalysts
Perhaps the most pressing reason to buy Bitcoin is the list of near-term catalysts on the horizon. Maybe the market is realizing this, as its price has risen 31% just in the last month (as of Oct. 26).
Many large asset managers have filed applications for Bitcoin spot exchange-traded funds (ETFs). The potential approval of these could introduce massive amounts of fresh capital to the crypto.
The upcoming halving, which is set for April 2024, is when Bitcoin's inflation rate gets cut in half. Historically, it has been a very bullish event for the price, both in the months leading up to it and in the months following.
Another possible catalyst is the chance that the Federal Reserve starts to cut interest rates in 2024. The central bank could be close to reaching its goal of taming inflation, after which it might want to take a more accommodating stance toward the economy. And this would be a positive backdrop for risky assets like Bitcoin.
Neil Patel and his clients have positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Block. The Motley Fool has a disclosure policy.