Could Buying Bitcoin Today Set You Up for Life?

Key Points

• Bitcoin has generated life-changing gains for its early investors.

• It could head even higher as more retail and institutional investors swoop in.

• But it probably won’t replicate its jaw-dropping gains of the past 15 years.

• 10 stocks we like better than Bitcoin ›

Ten years ago, Bitcoin (CRYPTO: BTC) was trading at about $245. At the time, the critics claimed it was in a bubble, since it had already risen 8,166,566% from its earliest trading price of $0.003 in 2010. That's the same year a man bought two pizzas with 10,000 bitcoins. But today, Bitcoin trades at more than $116,000. A $1,000 investment 10 years ago would have grown to more than $469,000. Those two pizzas would now cost $1.16 billion.

Investors might be wary of buying more Bitcoin after those huge gains, but the bulls believe it could soar even higher. Ark Invest's Cathie Wood sees its price surging as high as $2.4 million by 2030, while Strategy's (NASDAQ: MSTR) Executive Chairman Michael Saylor expects it to reach $21 million by 2046. We should take those bullish estimates with a grain of salt, but let's see if buying Bitcoin with a fresh $1,000 investment today could set you up for life during the next few decades.

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Image source: Getty Images.

The bull case for Bitcoin

Bitcoin is mined with the energy-intensive proof of work (PoW) consensus mechanism. Every four years, a halving occurs, which cuts in half the reward paid in bitcoins for mining. That increasing difficulty drives those miners to use more powerful chips to mine Bitcoin. It could initially be mined with regular CPUs, but the miners eventually moved on to more advanced GPUs, FPGAs (field programmable gate arrays), and ASICs (application-specific integrated circuits) to mine the token more efficiently.

Today, only large companies with fleets of dedicated ASIC miners -- like Riot Platforms (NASDAQ: RIOT) and Mara (NASDAQ: MARA) -- can consistently mine new Bitcoin. While smaller miners could technically still mine Bitcoin with their own GPUs or FPGAs, the electricity costs would far exceed the profit from any tokens produced.

Bitcoin also has a maximum supply of 21 million tokens, and 19.9 million of them have already been mined. That scarcity -- along with the increasing difficulty of mining Bitcoin -- makes it more comparable to gold, silver, and other precious metals than most cryptocurrencies.

Yet Bitcoin has clear advantages over gold and other precious metals. It can be instantly transferred and verified online, easily stored in digital wallets, integrated with other applications, and a single token can be split into 100 million Satoshis for smaller transactions. In other words, it combines the safety of gold with the liquidity of a fiat currency.

A bullish bet on Bitcoin is generally a bearish bet against fiat currencies like the U.S. dollar, the euro, and the Japanese yen. Fiat currencies aren't backed by a physical asset like gold; their values are only set by their governments, and inflation erodes their long-term value. Bitcoin, which isn't controlled by a central government and has a fixed maximum supply, is an appealing place to park your cash as fiat currencies lose their luster.

Last January, the Securities and Exchange Commission (SEC) approved the first crypto spot price exchange-traded funds (ETFs). That watershed event made it easier for retail and institutional investors to invest in Bitcoin without digital wallets, and it supported the bullish notion that it was a commodity like gold that had more staying power than smaller cryptocurrencies. Moreover, El Salvador and the Central African Republic both started recognizing Bitcoin as a legal tender. The Trump Administration even plans to established a Strategic Bitcoin Reserve to house the U.S. government's accumulated bitcoins and explore tax-free ways to buy more Bitcoin.

So, could buying Bitcoin today set you up for life?

Cathie Wood, Michael Saylor, and the other bulls believe that more institutional investors will accumulate Bitcoin as a hedge against inflation and other macro headwinds. Lower interest rates, which tend to accelerate inflation by sparking stronger economic growth, could make the top cryptocurrency even more appealing.

However, I'm not certain a fresh $1,000 investment in Bitcoin today will set you up for life. Even if Bitcoin hits Wood's bull case price target of $2.4 million by 2030, that would only turn a $1,000 investment into about $20,900. Assuming it soars to Saylor's target of $21 million by 2046, your investment would blossom to roughly $182,600. Those would be impressive market-beating gains, but they probably wouldn't fully fund your retirement unless you invested a lot more money.

Should you invest $1,000 in Bitcoin right now?

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.