The Federal Reserve continues to hike interest rates with the clear goal of trying to curb rising prices across the economy, and this has pounded risky assets. Bitcoin (BTC 5.50%), in particular, is down 59% in 2022 (as of this writing), causing many investors to question its merits as a proper hedge against the soaring inflation we've seen in the U.S. over the past several months.
But I think now might be one of the best times for investors to get aggressive. Let's take a closer look at why you'll definitely regret not buying the world's most valuable cryptocurrency on the dip.
Bitcoin has always bounced back
Since May 2013 (the earliest data available on coinmarketcap.com), Bitcoin has generated a return of more than 13,500%. This stellar performance absolutely crushes that of the S&P 500, whose total return during the same time was a paltry 175%. To be fair, Bitcoin's march higher has undoubtedly been full of extreme volatility. The top crypto has fallen more than 50% numerous times in its history. Moves like this simply don't happen in equity markets.
However, Bitcoin has always bounced back from its lows to ultimately reach new highs. For example, Bitcoin fell 83% from its peak (at the time) in December 2017 to trough in December 2018, only to come roaring back over the next six months. And more recently, Bitcoin dropped precipitously between April and July 2021 just before it skyrocketed to reach an all-time high of nearly $69,000 in November.
Despite what happens in any single month, quarter, or year, Bitcoin's history is full of cycles of reaching higher highs and lower lows with its crashes and rallies. As a result, investors would be wise to take advantage of the crypto winter we've been experiencing and put some money in Bitcoin at these prices.
Upcoming halving event
Bitcoin's network operates what is called a proof-of-work consensus mechanism. This system of validating transactions requires so-called miners to utilize massive amounts of electricity and computational power to add new blocks to the blockchain. For doing this work, miners receive rewards in the form of new Bitcoin.
About every four years, the mining reward amount gets cut in half, which reduces the rate of growth in the supply of Bitcoin. Usually, in the 12 to 18 months leading up to a halving event, the price of Bitcoin starts to trend higher. With the next halving estimated to happen sometime in the spring of 2024, roughly 18 months from now, Bitcoin's price could start to appreciate. And this means buying now could be a lucrative decision.
Opening the floodgates
Besides a history of its price bouncing back to reach new highs, as well as a halving on the horizon in 2024, another argument for why it's a good time to buy is the growing ecosystem surrounding Bitcoin. Fintech companies like Block, PayPal, and Robinhood Markets make it effortless to buy Bitcoin. And the hope is that these businesses will attract even more interest from retail investors.
Additionally, the recent partnership that the gargantuan asset manager BlackRock entered into with crypto brokerage and exchange operator Coinbase could bring in more capital from large institutional investors as they start to view Bitcoin as a legitimate store-of-value asset. In the meantime, it's all about providing the tools necessary to purchase Bitcoin, of which there is a growing list.
I think this is a no-brainer decision. Throughout its history, Bitcoin has always rewarded patient investors who can look out at least five years. There's absolutely no doubt that the path will be full of volatility and uncertainty, especially because this asset is still extremely early in its global adoption. But with the deep drop in its price this year, now is an opportune time to buy Bitcoin on the dip.
