There over 7,900 cryptocurrencies in existence today, and these digital assets are nowvalued at $2.7 trillion, increasing over 1,200% since Dec. 2019. To put that growth in context, the S&P 500 has produced a total return of 495% over the last twenty years.
Based on this information, it makes sense to invest a small percentage of your portfolio into this emerging asset class, assuming that you have emergency funds and will not need to spend the money for at least three years. Here are two cryptos that seem like smart long-term investments.
Bitcoin: Digital gold
In 2009, Satoshi Nakamoto created the crypto Bitcoin (BTC), a digital currency that is powered by a blockchain. You have probably heard of that term before, but it is important to know what exactly it means. Blockchain is a decentralized system of record that can secure transaction data through cryptography, which makes it possible to transfer money electronically without a bank or other intermediary.
Specifically, miners work to validate transactions by a consensus mechanism that is known as proof of work (POW), which means their computing power solves complex puzzles. Once solved, a block of transactions is added onto the blockchain, and the miner is then rewarded with BTC, effectively creating new currency. However, BTC’s source code requires that the reward be cut in half every 210,000 blocks.
Ultimately, that means BTC is a finite asset. Only 21 million crypto coins will ever exist, and the last coin will be mined more than a century from now in the year 2140. More importantly, as with other scarce assets (e.g. gold), BTC’s limited supply makes it a valuable asset. And as long as demand continues to increase, the value of Bitcoin should keep climbing. That is the investment thesis, or at least part of it. The other part deals with BTC’s popularity.
Since the debut of Bitcoin, thousands of other cryptos have been created, but none of them have achieved what BTC has. Bitcoin is basically synonymous with crypto, and it is still more valuable than any altcoin on the market. In fact, its market value is currently sitting at $1.0 trillion, meaning BTC accounts for 42% of the total value of all crypto.
In the future, the popularity of Bitcoin should drive adoption by institutional and individual investors alike, and that demand should keep its value on an upward trajectory. Cathie Wood thinks Bitcoin can reach $500,000 by year 2026, implying 790% upside from where its price currently stands. That is why this crypto looks like a great investment.
Litecoin: Digital silver
In 2011, Charlie Lee, who was a former engineer at Google, developed Litecoin (CRYPTO:LTC) as a fork of the BTC blockchain. To further clarify that term, a fork happens when a change is made to a blockchain’s protocol. In this case, Lee created Litecoin to be quicker and more abundant than BTC.
Specifically, miners still depend on a POW consensus mechanism to validate its transactions, but LTC blocks are created every 2.5 minutes, which is four times faster than BTC blocks, which are made every 10 minutes. This means Litecoin transactions are now done much faster.
Similarly, there are four times as many Litecoins than Bitcoins, with Litecoin having a limit of 84 million coins. And for that reason, this crypto is often styled as the silver to BTC’s gold, and once again, that is the crux of the investment thesis. LTC’s finite supply means its value should continue rising alongside demand.
Author: Blake Ambrose