Bitcoin (BTC 0.43%) remains a volatile asset. It's up 25% this year (as of Sept. 12). However, it was down 18% at one point. And right now, it's 7% below its peak, which was established in August. Bitcoin has still performed exceptionally well historically, so it deserves some attention.
Should you buy the world's most valuable cryptocurrency while it's trading under $120,000? Let's consider both the bear and bull cases of Bitcoin before making a decision.
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Bitcoin's bear case
It seems that with each passing year, after seeing its price continue to rise, the Bitcoin bears become quieter. However, that doesn't mean there aren't any risks to consider.
One of the most obvious is government intervention. The U.S., the world's biggest economy, is embracing Bitcoin, most notably with the Securities and Exchange Commission approving spot Bitcoin ETFs and the current administration creating a Strategic Bitcoin Reserve. These are obviously encouraging trends.
But it's anyone's guess what the next president will do. If politicians become concerned that Bitcoin will weaken the Federal Reserve's influence over the economy, then it could face an effective ban. This could mean making it illegal to mine, buy, and hold Bitcoin within our borders. This could weaken demand from a large source of capital.
Another risk is quantum computing. If these machines, which can process complex calculations faster than regular computers, ever develop to the point of mass commercialization and adoption, it could pose a threat. A quantum computer might be able to break Bitcoin's public key cryptography, exposing everyone's private key, and rendering the network worthless.
We could still be a long way from mainstream quantum computing. What's more, Bitcoin's developers are fully aware of this risk. And updates can be made to the blockchain to strengthen its security.
These are two of the most important risks facing Bitcoin. If any of them become a serious problem, the top digital asset's price will likely decline dramatically.
CRYPTO: BTC
Key Data Points
Bitcoin's bull case
Bitcoin has been around for more than a decade and a half. And the longer it stays relevant, the more confidence investors should have that it isn't going anywhere. This durability is one bull argument.
By being the oldest and most valuable cryptocurrency, Bitcoin not only has the most recognizable brand name in the industry, but it has developed a tremendous network effect. Users, developers, miners, and nodes all interact with Bitcoin because there are already so many other participants. This creates a positive feedback loop.
And there is a rapidly expanding ecosystem of products and services that companies are building to support Bitcoin's adoption. This doesn't just include financial services. Wallet hardware, mining equipment, and energy infrastructure are also being impacted. Bitcoin is penetrating the global economy in many ways, something that will certainly be hard to reverse.
Even though Bitcoin has soared 50,080% in the past decade, there is still upside. The market cap of $2.3 trillion could increase substantially over time. Gold provides a key signal of what could come. The precious metal has been viewed as the best store of value for thousands of years. However, the world is becoming more digital, which creates a favorable environment for Bitcoin to keep thriving.
The value of all the Earth's gold is estimated to be $24.8 trillion. I think there's a very good chance that Bitcoin will reach this figure, perhaps even in the next decade. Bitcoin can be used in transactions, while gold can't. Bitcoin can easily be transported. Gold's weight, on the other hand, makes it difficult to move around.
Maybe most importantly, Bitcoin is scarcer. Its supply can't change due to shifting demand trends. There will only be 21 million units.
I believe the bull case is much more compelling. With Bitcoin under $120,000 per unit, now is a good time to think about buying the digital asset.
