When Bitcoin (BTC -1.30%) retreated from its new all-time high of $73,750 in mid-March, some investors panicked, thinking that the volatile cryptocurrency might fall well past the current $66,000 level. But seasoned crypto investors held the line, seeing this as yet another buy the dip opportunity for Bitcoin.
And, indeed, as we head into April, the price of Bitcoin has stabilized. This shows yet again that temporary price corrections are no reason to abandon Bitcoin. So the next time Bitcoin takes a plunge, keep this in mind. Time and time again, the buy-the-dip strategy has worked out for Bitcoin investors.
Bitcoin and volatility
Investors refer to Bitcoin as a volatile asset, and the recent situation is exactly what they have in mind. Some might assume that Bitcoin has been on a relatively straight upward trajectory during the past five years, but nothing could be further from the truth.
Due to its historically high levels of volatility, Bitcoin has always been prone to sharp upswings and downswings. Parabolic moves to the upside are sometimes followed by dizzying downturns, and both can sometimes occur with incredible quickness.
Investors new to Bitcoin may find this type of extreme volatility a bit jarring. This could be why some investors are unwilling to buy the dip -- they simply aren't prepared for these types of price swings.
But as legendary Bitcoin bull Michael Saylor recently pointed out, "Volatility is vitality." From this perspective, volatility is the price to be paid for Bitcoin's rapid upside potential and one of the key reasons many investors consider the crypto to be so valuable. This volatility is what gives Bitcoin the possibility for high returns.
Bitcoin Historical Volatility Index chart by TradingView.
The good news for risk-averse investors is that Bitcoin's volatility appears to be decreasing over time. As the above chart from TradingView shows, daily price moves are becoming less dramatic than just a few years ago. And that means future dips should be less jarring than the one that just took place.
The search for Bitcoin's next catalyst
For much of this year, Bitcoin's sharp price appreciation has been driven primarily by one catalyst: the introduction of the new spot Bitcoin exchange-traded funds (ETFs) in January. By opening up Bitcoin investing to all retail and institutional investors, these ETFs immediately resulted in a huge influx of new investor money into the cryptocurrency.
For two months, this influx of new money continued nearly unabated. On some days, more than $1 billion in new money flowed into Bitcoin. But with the latest price correction, investors started to see a net outflow for the first time since January, and that weighed heavily on the crypto's price.
Image source: Getty Images.
The good news is that a new catalyst for continued price appreciation is coming soon. The Bitcoin halving, in which the mining rewards paid out to Bitcoin miners are slashed in half, is now scheduled for April 20. As a result, buying the dip throughout 2024 should not be as daunting, given that many believe the April halving could lead to the next big rally in the cryptocurrency's price.
There have been three previous Bitcoin halvings (in 2012, 2016, and 2020), and each has led to a new all-time high for the crypto. The 2020 halving, for example, eventually led to Bitcoin soaring as high as $69,000, its previous record before the rally last month. So hopes are naturally high that the impending halving will have the same impact. With that in mind, now is no time to sell when a new catalyst is so tantalizingly close.
The long-term outlook for Bitcoin
It's important to maintain a long-term outlook for Bitcoin so you won't be distracted by short-term swings in price. This long-term outlook includes mainstream adoption of Bitcoin by investors, a growing number of use cases for Bitcoin, and an increasingly prominent role for the crypto in the global economy. That long-term outlook is the secret to the buy-the-dip strategy.
Cathie Wood of Ark Invest recently doubled down on her $1.5 million price prediction for Bitcoin, and a big reason for this was the crypto's long-term outlook. She is not focused on short-term market fluctuations. For her, Bitcoin remains a "financial superhighway" capable of becoming a major part of the global financial system, especially in emerging markets.
But keep in mind that the path to $1.5 million is unlikely to be gently sloping upward. There will be hills and valleys along the way. Some of those hills will look like insurmountable mountains, and you might question how Bitcoin is going to possibly climb higher. That's when the volatility you've been worrying about now is going to become the rocket fuel needed for Bitcoin to soar higher. So if you're thinking of abandoning this crypto now, stop worrying and learn to buy the dip.
