As inflation rises and the stock market wobbles, many seek alternative ways to invest their money. If you’re one of them, you may have heard that Bitcoin is an option. But is Bitcoin as an investment worthwhile? Let’s find out. This article will explore how Bitcoin can be a strategic investment opportunity in 2025, helping you make informed decisions for your Bitcoin annual returns.
Discover essential Bitcoin analysis for 2025, covering investment insights, potential risks, rewards, and strategies for savvy investors.
Is Bitcoin an Investment or a Currency?
On the surface, Bitcoin appears to be a simple concept. It is digital money. Nevertheless, if you dig a little deeper, you see it has a dual nature. Bitcoin can be both a currency (or money) and an investment. Understanding how these two aspects relate can help you navigate the Bitcoin markets and make informed investment decisions.
What is Money?
Before exploring Bitcoin's nature, we need to understand how it helps define money. Three fundamental values describe what money is and what it does.
- It’s a store of value: You can save it and use it for later, knowing its value will remain.
- It’s a medium of exchange: Something we use to buy and sell things everyone accepts.
- It’s a unit of account: A way to measure the value of goods and services.
Understanding this helps define how Bitcoin is currently perceived. In places where adoption is low, it doesn’t satisfy any of the above. In areas where adoption is high, it can tick all three of the what is money boxes. On a global scale, thanks to Bitcoin’s growth in value, it satisfies the criteria that the currency can be a store of value.
Bitcoin as a Currency
Bitcoin’s original purpose, as laid out in the original paper published by Satoshi Nakamoto, was to be a decentralized payment method. Satoshi wanted to create a medium of exchange—a way to buy and sell goods. More than 100,000 websites worldwide accept Bitcoin as a form of payment.
Nevertheless, as the popularity of Bitcoin has increased, its ability to serve as a quick, free way to transfer money has become hindered. Transaction fees and the number of transactions handled at once by the network have made Bitcoin seem less viable as a medium of exchange.
Read more about that in our article Bitcoin’s Limits. Nevertheless, countries like Japan, Russia, and Norway all accept Bitcoin as a currency. The Lightning Network could fix many of the above issues.
Bitcoin as an Investment
Thanks to Bitcoin’s fantastic performance in 2017, many saw the currency as a place to put cash and watch it grow, like an investment. Many have compared it to gold. The Winklevoss twins, who invested in Facebook, described Bitcoin as Gold 2.0. Nonetheless, gold as an investment is considered somewhere safe to put your money when currencies aren’t faring well.
Bitcoin's Volatility
Bitcoin’s price volatility makes its suitability as a haven questionable. But that could change. As part of Bitcoin’s design, the amount of Bitcoin available increases by approximately 4% annually. It’s slowly engineered to decline to zero growth around the year 2140. Bitcoin’s diminishing growth rate and finite quantity are comparable to gold.
Bitcoin as a Commodity
One possible idea for where Bitcoin could be heading is to become a tradeable commodity, like oil or metal. In America, the Commodities Futures Trading Commission designated Bitcoin as a commodity in 2015.
Banks like JP Morgan also see currency as an asset class. But that doesn’t mean it’s a done deal for Bitcoin. Currencies are traded as commodities worldwide thanks to their relationship with the prices of certain goods.
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The Case for Bitcoin as an Investment
Bitcoin's built-in supply cap of 21 million coins creates scarcity and supports the token’s potential as a long-term store of value. Unlike fiat currencies, which governments can produce an unlimited supply of, no one can produce more than the predetermined amount of Bitcoin.
Inflation Hedge
Central banks worldwide have ushered in unprecedented growth in money supply, eroding their currencies’ purchasing value. In comparison, Bitcoin’s limited supply and increased mining difficulty over time may support the idea of Bitcoin as a long-term store of value and an alternative to gold.
The Halving Effect
Bitcoin has “halvings” programmed into it, which occur roughly every four years and cut the Bitcoin production rate by 50%. These halvings increase the difficulty of mining Bitcoin and will continue until the supply cap is reached. The fourth halving occurred in April 2024. Historically, the price of Bitcoin has rallied leading up to and following a halving.
Bitcoin Adoption Continues
In its early years, Bitcoin was used mainly by a small group of tech enthusiasts. It was challenging and cumbersome with limited use cases and very few merchants accepting it as payment. In 2024, Bitcoin adoption has grown substantially as it has become more mainstream.
Bitcoin's Growing Acceptance and Accessibility
Now, more than ever, merchants and businesses are accepting Bitcoin as a form of payment, and infrastructure has been built to make it more convenient for the average person to use. The development of user-friendly wallets, exchanges, and marketplaces has removed the technical barriers to entry that existed in Bitcoin’s early years.
Bitcoin as a Portfolio Diversifier and Inflation Hedge
Bitcoin interest among institutional investors has also increased. Hedge funds, asset management firms, and endowments are increasingly recognizing Bitcoin’s potential as a store of value and as an effective portfolio diversifier, specifically when looking through the lens of an uncorrelated asset that has the potential to hedge against inflation.
Approximately $196 billion worth of Bitcoin is now held by ETFs, countries, and public and private companies.
Layer 2s Boost Bitcoin Adoption
Layer 2s (such as Liquid by BlockStream) may boost Bitcoin adoption, allowing scalability and customizations while retaining many of Bitcoin’s security properties. Built on the Bitcoin blockchain, we believe the Lightning Network pushes the boundaries of Bitcoin payment capabilities with lower costs and faster speeds.
Expanding Bitcoin's Capabilities with Digital Asset Management
One notable upcoming layer two development on the Bitcoin network is RGB. This development is essential because it enables creating and managing digital assets on the Bitcoin blockchain. Assets such as stocks, bonds, real estate, etc., can be issued and traded on top of the Bitcoin network, adding a new layer of functionality.
The RGB protocol is designed to be scalable and not resource-intensive, allowing users to create and manage digital assets without requiring extensive changes to the underlying Bitcoin network.
RGB and the Future of Digital
RGB can be integrated into existing Bitcoin wallets and infrastructure, thus making it easier for developers and users to create and manage digital assets. RGB has the potential to expand the use cases of Bitcoin, making it a more versatile and valuable platform for developers and users alike, ushering in new opportunities for innovation and growth within the ecosystem.
Potential Hedge Against Inflation
The unprecedented worldwide growth in money supply following the COVID-19 pandemic led to widespread inflation, eroding the purchasing power of established fiat currencies. Bitcoin’s role as a potential hedge against inflation has increasingly become a talking point central to investment decision-making.
As previously alluded to, the cornerstone of this idea lies in its limited supply and decentralized nature. Unlike fiat, which governments and central banks can print, Bitcoin has a fixed supply, with the halving events decreasing supply growth by 50% roughly every 4 years.
Preserving Purchasing Power
Bitcoin is not subject to the same inflationary pressures caused by fiat money supply growth, making it an attractive option for investors concerned about the impact of inflation on their portfolios and their subsequent purchasing power.
Bitcoin’s decentralized nature makes it impervious to geopolitical events or economic policies that may lead to currency devaluation, such as QE (quantitative easing) or excessive government spending.
Bitcoin’s History of Robust Performance
Despite its infamous volatility, Bitcoin has managed to outshine other asset classes over the past decade.
It has been the best-performing asset class for eight out of the past eleven years. Let’s take a closer look at Bitcoin’s historical returns for various holding periods (as of December 31, 2024):
- 1 year: 122.39% return
- 3 years: 99.48% return
- 5 years: 1,212.25% return
- 7 years: 577.31% return
- 10 years: 35,224.96% return
These figures underscore the incredible growth potential that Bitcoin has exhibited over time, making it an attractive option for investors seeking high returns.
How Might Bitcoin Shine Brighter Than Gold?
While Bitcoin shares some of the characteristics attributed to gold, below are differences that, in our view, potentially make it superior. Divisible: As a physical asset, gold can only be divided into smaller units to a certain extent, making smaller transactions cumbersome and, in some instances, impractical.
Divisibility and Transparent Transactions
Bitcoin is divisible up to eight decimal places (with the smallest unit, Satoshis), making it easier for microtransactions. Transparency: All transactions that have occurred or will occur are publicly available on the Bitcoin blockchain. This feature makes it difficult to manipulate and impossible to counterfeit Bitcoin, increasing trust in the network.
Limited Transparency and Potential for Fraud
Gold lacks the same level of transparency when it is traded; the transaction details, such as the buyer, seller, and price, are often not publicly available. This lack of transparency may make verifying the authenticity of the gold being traded more challenging and may lead to an increased risk of fraud and manipulation.
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