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Can Bitcoin Join the Trillion-Dollar Club in Five Years? | The Motley Fool


Bitcoin's (BTC 3.74%) undoubtedly one of the best financial assets to have owned in the past decade, as its price has shot up about 20,000% since September 2013. That translates to a ridiculous compound annual growth rate (CAGR) of 70%, which trounces what investors in the stock market would have been able to achieve. 

But what does the future hold? Can the world's most valuable cryptocurrency join the trillion-dollar club in the next five years? Here are some reasons why I believe Bitcoin's market cap essentially doubling by 2028 is a very real possibility. 

Attracting institutional capital 

What's unique about Bitcoin is that its early adoption was solely by individuals, primarily by computer scientists who were intrigued by this new internet money. Only in the past few years has it started to draw greater interest from institutions. 

Nowadays, there are even publicly traded mining companies, a huge step of progress from Bitcoin's start when even a regular laptop could process transactions to the network. Governments own Bitcoin, and so do major corporations. 

The latest news that has caught investors' attention is the potential approval of Bitcoin spot exchange-traded funds (ETFs). Applications have been filed by well-known asset managers, like BlackRock and Fidelity, among others, that would boost the accessibility and convenience of gaining exposure to the digital asset. If ETFs come to market, they would certainly help support the idea that Bitcoin is a legitimate financial asset. 

Needing regulatory clarity 

Gary Gensler, chair of the Securities and Exchange Commission, has previously stated that he views every other crypto besides Bitcoin as a security, which requires a ton of regulatory oversight. By labeling Bitcoin as a commodity, the argument can be made that its creation and existence hasn't violated any laws, mainly because there's evidence that it isn't controlled by a single entity. 

There has been increased interest in finding ways to better regulate the industry, especially after the high-profile blowup of FTX and others last year. Perhaps this is still a key reason that some investors remain on the sidelines. 

Should those spot ETFs get approved, and a clearer regulatory framework come about, the risk of owning Bitcoin will definitely be reduced. 

More likely than not 

For Bitcoin's market cap to double in the next five years, its price would need to rise at a roughly 15% CAGR. Based on the cryptocurrency's past performance, this is an extremely conservative outlook, but it is still a forecast that will most likely outperform the stock market. 

I think there's a greater than 50% chance that Bitcoin will reach the trillion-dollar club by 2028. The arguments I've outlined above are two of the most important developments that I believe will work in Bitcoin's favor in the near term. Investors should pay attention to any updates in this regard. 

Additionally, I have confidence that Bitcoin isn't going anywhere. It has been around for almost 14 years and has never been hacked. The Lindy effect says that the life expectancy of a new technology increases with every passing year that it remains relevant. The longer Bitcoin stays around, the less likely it is to cease to exist. 

Bitcoin also has the greatest brand recognition in the world of cryptocurrencies. Plus, there is an exhaustive list of financial services and products that are built to support its adoption. This bodes well for its future.  

Nonetheless, there's a lot of uncertainty surrounding this outlook, so investors should size their positions according to how much risk they are willing to accept. As part of a well-diversified portfolio, a 1% stake in Bitcoin makes perfect sense. Should the asset continue its long-term trend of skyrocketing in value, it can have a meaningful effect on one's portfolio. On the flip side, if Bitcoin becomes irrelevant and its price declines, losing a 1% position won't be a big deal. 

It's also critical to accept that there will continue to be a lot of volatility. Bitcoin has experienced multiple drawdowns of greater than 50% throughout its history, something that likely won't change going forward. 

Neil Patel and his clients have positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

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