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Should you buy Bitcoin Dip today?
Bitcoin has been in trouble since the new ETFs were launched, but this effect is nothing new.
After a historic start to the year with the approval of 11 new exchange-traded funds (ETFs), Bitcoin (Bitcoin -0.45%) fell nearly 20% following the landmark decision and remains more than 10% lower than today’s peak. In what’s shaping up to be a classic “buy the rumor, sell the news” event, hopes that the cryptocurrency’s new home on Wall Street means it will only go up from here may need to be reconsidered.
However, despite the pullback (and to the dismay of critics), Bitcoin remains in a healthy position as the prospects of a bull market loom. From here on out, any chance to catch Bitcoin as it slides should be viewed as an opportunity. Here because.
Image source: Getty Images.
A natural phenomenon
Bitcoin is known for its volatility. Over its 15-year history, it has seen approximately eight declines of more than 50% and three that resulted in a correction of more than 70%. These pullbacks usually mark the beginning of bear markets. But even when things are going well and Bitcoin is in a bull market, it can experience significant declines.
Take a look at Bitcoin’s latest bull run in 2021 for proof. On the way to its current all-time high, there have been around five instances where Bitcoin lost more than 20% over the course of a week or two. At one point in 2021, it fell 50%, from $58,940 in May to $29,800 in July. Amazingly, it more than doubled from there in just four months, to nearly $69,000.
This turbulent price action often scares investors, but there are reasonable explanations that help put Bitcoin’s volatility into context. First, we must remember that Bitcoin is traded 24 hours a day, seven days a week, all over the world. Without specific trading hours like the stock market, Bitcoin is truly an international currency. Furthermore, most trades occur with leverage. This means that when Bitcoin crosses levels where significant interest accumulates, the movements are exacerbated and sudden.
The fundamentals remain intact
With some further context showing that Bitcoin is no stranger to declines even in bull markets, investors should be somewhat reassured that nothing out of the ordinary has happened. Indeed, when taking into account the growth of Bitcoin’s key fundamentals, confidence that these pullbacks are only minor bumps in its path of price appreciation should only solidify.
At its center, Bitcoin it is nothing more than an open source network where users can transact directly with each other. To remain viable, it is critical that Bitcoin becomes more decentralized, secure, and resilient over time. Fortunately it is.
A key metric that captures the evolution of Bitcoin is known as hash rate. Used to quantify Bitcoin’s computing power, hash rate is one of the most important statistics investors can use to gauge the overall strength and health of the network. As it turns out, Bitcoin’s hash rate is just below its all-time high. It peaked in early January 2024 and there are more miners and nodes participating in the network than ever before. Today, the total computational power of the Bitcoin blockchain network is estimated to be 500 times greater than that of the world’s most powerful supercomputers.
Not only is the network becoming more robust, but adoption trends continue to grow favorably. Take the total number of digital wallets with a Bitcoin balance as proof of this. Today there are more than 53 million wallets holding varying amounts of Bitcoin. This is 10 million more names than just a year ago and double the number of five years ago.
Smooth and steady
At first glance, Bitcoin’s recent volatility may be misleading and potentially concerning. However, when considering the scope and frequency of its corrections, even in bull markets, Bitcoin’s recent pullback is normal.
In fact, one could argue that Bitcoin has never been in better shape. While its price bounces up and down, the network’s resilience and growth remains refreshingly constant. Until some indicator suggests a lack of fundamental strength, consider this drop, and all future ones, as a reason to buy the world’s original cryptocurrency at a discount.
RJ Fulton has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.