It would take more than a few minutes to find an asset that has produced a better return over the past five years than Bitcoin (CRYPTO: BTC). During this period, the world’s most valuable cryptocurrency soared by 1,000%. For comparison purposes, heavy technology Nasdaq-100 the index rose 128% during this period.

Bitcoin has performed fantastically over the last year and a half in particular. But things are cooling down as the price is 13% below the peak price (on the morning of May 5th). Investors are likely viewing this as a potential buying opportunity.

If we look at the next five years, where could Bitcoin be?

A unique asset

I think Bitcoin’s main value proposition is that it is a scarce asset. There will only be 21 million coins in circulation, with a scheduled inflation rate that has yet to change in Bitcoin’s roughly 15-year history. As demand for a fixed asset increases, so does the price.

This is in stark contrast to Bitcoin’s main competitor, fiat currencies. Thanks to irresponsible fiscal and monetary policies, especially in the USA, these currencies are constantly losing their purchasing power. Bitcoin’s structure seeks a more controlled solution.

Another factor driving the price of Bitcoin is the advent of a more robust financial services infrastructure. The most recent development in this regard was the approval of spot ETF products in January. So far, these have been largely successful in driving capital flows into Bitcoin. Furthermore, the Securities and Exchange Commission’s decision to approve ETFs can be seen as a regulatory stamp of approval.

There are many companies, from Wall Street banks to scrappy start-ups, all working on different Bitcoin-related products and services. Therefore, it is easy to believe that this asset will reach more portfolios over time.

I am quite confident that in five years the price of Bitcoin could be double what it is today. However, if history is any indication, this may prove to be a very conservative perspective.

Risks to take into account

After learning about some of Bitcoin’s features, it’s hard not to be optimistic. This is a special asset worth owning. And I believe this has significant advantages in the long term. However, investors also need to be aware of any risks.

The main risk factor is that the US government bans Bitcoin within its borders, essentially making it illegal to own or mine the cryptocurrency. This would essentially leave out a huge pool of capital, resulting in weaker demand for Bitcoin. But as the value of Bitcoin continues to rise, and more people from the wealthy and political class begin to own it, the possibility of an outright ban diminishes.

The story continues

Another risk that we cannot ignore is of a more technical nature. Perhaps an approved update to the Bitcoin blockchain will create a software bug that exposes everyone’s private keys, rendering the network useless. Or progress towards quantum computing allows Bitcoin’s encryption to be broken, again undermining the security of the network.

But to help alleviate these potential threats, it’s best to realize that Bitcoin nodes will not approve any updates that could cause havoc. And when it comes to quantum computing, there is a high probability that Bitcoin developers will come up with a way to strengthen the security of the network.

Once you understand these risks, you can set more realistic expectations. While I don’t believe Bitcoin’s returns over the next five years will be similar to the last five years, it’s definitely worth taking a closer look at this cryptocurrency for your own portfolio. Just remember to maintain a long-term mindset and be prepared for the inevitable ups and downs.

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Neil Patel and its clients do not have a position in any of the stocks mentioned. The Motley Fool has positions and recommends Bitcoin. The motley fool has a disclosure policy.

Where will Bitcoin be in 5 years? was originally published by The Motley Fool

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