If You’d Invested $100 in Bitcoin in 2011, Here’s How Much You’d Have Now

the first Bitcoin (CRYPTO: BTC) It was mined 13 years ago. In the first three years, it was worth less than a penny. But in 2011, it passed a major milestone when it reached parity with the US dollar.

At the time, many people laughed at Bitcoin and argued that it could not be used as a major currency or as a long-term investment. But if you took a contradictory view and bought a hundred bitcoins for $100 that year, your investment would be $4.32 million today.

How did bitcoin silence the critics?

When Bitcoin was created, the idea of ​​using computer chips to mine a digital currency seemed strange and unbelievable. But in practice, it was not very different from the use of industrial machinery for mining precious metals.

Image source: Getty Images.

Just like gold, bitcoin is a finite resource. As more bitcoins are mined, mining new bitcoins becomes more difficult and less cost-effective. In the early days, it was possible to mine Bitcoin using high-end personal computer graphics processing units (GPUs).

But today, Bitcoin cannot be mined effectively using normal GPUs due to the time and energy required to mine a single Bitcoin. Instead, expensive hardware known as application-specific integrated circuits (ASICs) is now needed to mine a steady supply of bitcoins. However, the same economic logic applies to bitcoin and precious metals: miners can only make money if the costs of machinery and labor do not exceed the market value of the metal.

Furthermore, the Bitcoin algorithm limits its lifetime production to 21 million Bitcoins. It is generally estimated that the last bitcoin will be mined by the year 2140.

As more and more people absorb these concepts, they begin to value Bitcoin as an asset alongside gold and other precious metals. Moreover, the anonymity and security of Bitcoin transactions, which are enabled by a distributed ledger technology called blockchain, has also made it an attractive alternative to fiat currencies for financial transactions. An increasing number of investors have also started touting bitcoin as a potential inflation hedge.

Bitcoin future

After Bitcoin reached parity with the US dollar, more investors, analysts, entrepreneurs and even governments jumped on the bandwagon.

pure bitcoin mining companies like Digital Marathon (NASDAQ: MARA) And Blockchain riot (NASDAQ: RIOT) Featured, like cryptocurrency exchange Queen Piece (NASDAQ: currency) It grew, and the first Bitcoin Exchange Traded Funds (ETFs) reached the market.

Bitcoin advocates such as Jack Dorsey and Mark Cuban have drawn more enthusiasm from mainstream investors, while an increasing number of retailers are beginning to accept Bitcoin as a payment option. El Salvador became the first country to officially accept Bitcoin as legal tender last year.

ARK Invest’s Cathy Wood recently predicted that Bitcoin could reach $560,000 by 2026 – which would make your initial $100 investment worth $56 million. Wood believes that Bitcoin could reach such a high price if all institutional investors allocate only 5% of their portfolios to the cryptocurrency.

But it’s not all sunshine and rainbows

The future of Bitcoin may look rosy, but there are still plenty of challenges to overcome. Government regulators around the world have implemented bans, restrictions, and taxes on Bitcoin and other cryptocurrencies. Countries can also develop their own digital currencies attached to their fiat currencies as a viable alternative to cryptocurrencies.

The environmental cost of bitcoin mining, which caused Elon Musk to turn against the cryptocurrency last year, is also raising red flags. Dutch economist Alex de Vries estimates that if bitcoin hits $500,000, miners will pump out more than 617 million metric tons of carbon dioxide per year — exceeding the carbon production of countries such as Brazil and the United Kingdom.

Meanwhile, bitcoin’s volatility can prevent its use in daily transactions. If fewer retailers embrace bitcoin as a payment option, it may fail as a currency and continue to be used as a speculative investment.

Is it too late to buy bitcoin?

Bitcoin’s volatility has prevented it from being an effective inflation hedge over the past few months. But that could change in the future if the bitcoin price stabilizes and regulatory headwinds fade.

I think investors should have some exposure to Bitcoin, but it should only occupy a low single digit percentage of their portfolio. This way, you will profit if the bitcoin price goes up too high, but you also won’t suffer any permanent damage if the bubble bursts.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.