Is Now the Time to Buy Bitcoin?

Is now the time to buy Bitcoin? In November 2021, Bitcoin cracked the US$60,000 mark and even soared tantalisingly close to US$70,000. And, on its coattails, Ethereum, Cardano, Solana, XRP, Binance Coin and many more altcoins soared with it.

It was a golden era for early adopters who were eyeing up massive profits.

Fast forward to now, and the sun has set on those golden days. Bitcoin is now hovering around the US$20,000 mark, after briefly falling as low as US$17,593. A more than 70% fall from those record highs in November. And virtually all other coins are facing bearish returns of their own.

So what’s next?

Is this the time to grab a cut-price deal and buy Bitcoin, Ethereum, or other popular altcoins? Or is it only down from here? Canstar explores.

What’s happening to Bitcoin?

Quite simply, it’s crashing. And astronomically so. But it’s worth mentioning, it’s not the only asset class falling back down to earth. Not only is the entire crypto market crashing, but nearly all markets across the world are facing a downturn to some extent. A quick look at your KiwiSaver will tell you as much.

This is largely the result of macroeconomic events and market sentiment. During the pandemic, quantitative easing was introduced around the world and interest rates were cut to stimulate economies. However, it worked too well and now, compounded by persistent supply chain issues and the war in Ukraine, inflation has become the enemy, so the supply of cheap money is being cut off and interest rates are rising.

As a result, rather than speculate wildly on things like crypto, dodgy tech start-up and digitally rendered images of apes, investors are being a bit more prudent, and are looking for safer havens to park their wealth. And because Bitcoin and cryptocurrencies are about as risky as assets get, they are feeling the effects of a bear market …

… and then some. Cryptocurrencies by their very nature are decentralised and unregulated. While many people see this as one of crypto’s big strengths, the lack of regulation opens the door for unscrupulous players and adds a huge amount of risk for investors. The recent Terra-Luna collapse is a perfect example of this, and is one of the reasons crypto is now in the middle of a bleak, long winter.

Buying the dip

However, many investors are asking is now the time to buy Bitcoin? And the reason for this is based on the notion of ‘buying the dip’. Bitcoin is now just a fraction of what it was a few months ago. So while some are cutting their losses and running, others see it as a temporary price drop and a time to buy Bitcoin at a discounted rate before prices go back up. A bit like getting it on sale.

And if you look at the history of most markets, this sentiment holds some weight. Markets traditionally go through bull and bear cycles. That is, they have moments of rising prices and falling prices. But, the overall trend is that prices go up. A quick look at this market graph of the S&P500 shows exactly that.

So, if history tells us anything (remember history is no guarantee of future performance) then buying the dip can be an effective way of buying into an asset at a cheaper rate and maximising profits down the line.

→Related article: What Is a Bear Market and Should You Invest in One?

Is it really just a dip?

Buying the dip is based on the idea that the fall in price is actually a dip, and not a precipitous dive to the bottom. For most blue chip stocks a dip is indeed a dip, and the asset should likely recover and grow over time. However, looking at cryptocurrencies such as Bitcoin, many of which are built on hype and speculation, it’s a different story.

Cryptocurrency is quite possibly the most risky asset on the planet. Over the past five years, and even before the pandemic, Bitcoin’s price has been extremely volatile. And the Covid-induced surge of novice investors has done little to help.

Not only did the hype generated overinflate many crypto assets, but inexperienced investors are typically the most skittish. When things start to go bad, they bail. And in large numbers. Throw in the added attention on the crypto market, talk of regulations and government bans, plus high-profile failed projects, such as Terra-Luna, and the future of crypto is much more uncertain than any legacy market.

Whether this is simply a dip at all, is hard to say.

Learn more about cryptocurrency here

Is now the time to buy Bitcoin?

We said above that buying the dip is like getting something on sale. Well, it can also be like getting something on final clearance before it’s discontinued.

Even before the overall market entered a downturn, the future of Bitcoin was uncertain.

Many see it as the future of money and finances. And if it achieves that goal it could be incredibly valuable one day. If so, buying Bitcoin now could be a bargain. Even if you have to ride out some anxiety-inducing volatility along the way.

However, even some of cryptos’ biggest fans see Bitcoin more as the coin that started it all, and less as the one to take it forward. It may be that one of the thousands of altcoins will be the coin to truly succeed. So buying the dip might be an effective strategy for crypto, but not Bitcoin itself.

→Related article: What To Do When the Stock Market Goes Down

You then have the many others who see Bitcoin (or even the crypto market as a whole) as a pyramid scheme that is waiting to burst and never recover. It’s plausible, and it’s also possible that we may have already seen that burst.

Others see crypto somewhere in between, existing alongside our fiat currency in a much more controlled and regulated manner. If that’s the case, this may not be the end of crypto, but it might be the end of the crypto rush. Once regulation steps in, it could kill off much of the buzz. Like if we invented flying cars only for regulators to step in and say we can only use them on our existing roads, at a max height of 30cm above the ground.

Flying cars might not end up being the groundbreaking investment you thought they were going to be…

Then again, regulation could help stabilise crypto assets and limit their volatility. Making them more practical in a real-world sense. And that could be good news for investors.

If all the above sounds like one big contradiction with no clear answer, that’s because it is. Crypto has always been a gamble and highly unpredictable, and the current crash hasn’t changed that.

How to invest in the Bitcoin ‘dip’

If you believe that this is just a dip (again, it might not be), and you do want to invest, what’s the best way to go about it?

Firstly, you’ll need to decide on a number you’re comfortable losing. Any investment you make runs the risk of losing that investment. But crypto more so than others. Just think of those who invested in Terra (LUNA), and saw their investment drop from over US$100 to a near non-existent US$0.000059 almost overnight.

Once you’ve picked an amount you’re okay with risking, it might be wise to begin dollar-cost averaging into the asset.

Instead of hoping this is the dip and piling in all your money, consider putting in a fixed amount each month. If the price continues to drop you’ll get more of the asset with each purchase. If the price rises, you may not get quite the same level of gains had you gambled and piled all your funds in. But you’ll still be in the green.

This way you can minimise your risk (as much as that’s possible with crypto) and continue to take advantage of future price drops.

Whatever you do, do your research, and understand the risks.

→Related article: Dollar Cost Averaging in Crypto

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