Is Bitcoin a Good Investment for Building Wealth?
Bitcoin has favorable properties as a long-term wealth-building investment despite its volatility. With over 95% of the 21 million BTC that will ever exist now in circulation, supply constraints paired with growing demand create a recipe for long-term price appreciation.
A real wealth-building asset can grow in value over many years on end throughout all kinds of different economic and market conditions. Graded on that rubric, Bitcoin fails several of the conventional tests, as it has no dividends, no earnings, and plenty of volatility. Yet the case for owning some as a wealth-building instrument has never been stronger.
The point of Bitcoin is that it's a scarce store of value that becomes scarcer over time, and that is unlikely to change in any significant way. On March 9, the network mined its 20 millionth coin, which means that over 95% of the 21 million BTC that will ever exist are now in circulation. The rest will trickle out at increasingly slower rates with every halving; the next halving will occur in April 2028.
Bitcoin's annual supply growth is now under 0.8%, and will only fall - already less than half of gold's estimated 1.5% to 2% annual supply growth.
On the demand side, spot Bitcoin exchange-traded funds (ETFs) brought in $18.7 billion in net capital inflows in the first quarter, pushing the combined assets under management of the ETFs past $128 billion. Roughly 193 public companies now hold Bitcoin. Every coin entering a corporate treasury or an ETF is one fewer on the open market, thereby adding to the price impact of each incremental unit of demand.
Bitcoin has favorable properties as a long-term wealth-building investment, even if it isn't a traditional candidate for a portfolio. But none of its upsides guarantees a smooth ride. Despite the nickname "digital gold," Bitcoin has behaved more like a risk asset than a proven inflation hedge in times of rising price levels. Plus, it has a habit of declining by 80% relative to its high water marks, though it has eventually always recovered.
Bitcoin belongs as a supporting player in a wealth-building portfolio. A smaller Bitcoin allocation - sized so a huge drawdown would not wreck your plans - is enough to capture the asymmetric upside available from a scarce and increasingly institutionalized asset.
