After the market sell-off in early August, even experienced crypto investors are having second thoughts about the crypto market. And that's perfectly understandable.
Many of the top cryptocurrencies (as ranked by market cap) are still in the red over the past 30 days, and few show signs of recovering anytime soon.
But there's one you should think about buying in August, and that's Bitcoin (BTC +0.28%). After briefly dipping below $50,000 this month, it has since stabilized around $60,000 and could be on the brink of a major breakout this fall. There's reason to be skeptical, of course, but here's why I would invest $1,000 in Bitcoin this month.
The return of Bitcoin's famous volatility
It's hard to believe, but just two years ago, crypto traders were talking about how "boring" Bitcoin had become. Instead of wildly gyrating in price as it used to, it seemed to be locked within a relatively narrow trading band. Huge one-day swings in price seemed to be over. In short, the digital coin was starting to lose some of its famous volatility.
But the gut-wrenching events of early August could be a sign the crypto's famous volatility is about to return. Consider that its price has already zigged and zagged this month in ways nobody could have predicted. Yes, it fell nearly 30% in the crypto market sell-off, but it also recovered by nearly 20%, all in just one week.
CRYPTO: BTC
Key Data Points
There are two ways to think about Bitcoin's volatility. If you're a traditional equity investor, it's easy to see how the volatility could be a deal-breaker. Who wants to invest in an asset that might lose 20% of its value overnight?
But if you're a crypto investor, it's this famous volatility that presents the opportunity for massive price gains. If the price of Bitcoin is going to $1 million, as some top investors think, it's not going to get there by grinding out 10% annual returns. It needs massive one-time spikes in price. For that reason, it's possible to view the crypto's volatility as a feature, not a bug.
The spot Bitcoin ETFs
Another big factor in its favor is the remarkable resilience (at least, for now) of the new spot Bitcoin ETFs. In response to August's market turbulence, they held up much better than anyone thought. Many expected to see significant outflows in the wake of the digital coin's decline in price, but that simply has not been the case. In fact, one week after the worst crypto sell-off in two years, net inflows into the spot Bitcoin ETFs were still positive.
Image source: Getty Images.
Admittedly, one week is a tremendously small statistical sample, but it should give investors reason for optimism. Retail and institutional investors are not panicking, but are instead choosing to buy the dip. For them, a 20% drop in price is an opportunity to buy Bitcoin at a 20% discount.
Bitcoin's seasonality
Finally, consider its historical seasonality. Just days before the crypto market sell-off, Coinbase Global (COIN +4.25%) published a research note warning of Bitcoin's tendency to perform poorly during August. Over the five-year period heading into this month, it averaged a price decline of 2.8% during August.
At the same time, Bitcoin tends to see much less trading activity during this particular month, meaning less liquidity overall in the marketplace. For example, last year, trading volume was down 19% in August compared to June. As Coinbase warned, the combination of lower prices and lower liquidity could set the stage for unexpected volatility. And that's exactly what happened.
How to invest $1,000 in Bitcoin
Based on the above, I'm convinced that Bitcoin is the ultimate cryptocurrency to buy with $1,000 right now. The return of its historical volatility could set the stage for a major breakout, while the resilience of the spot ETFs means there's a strong floor in place in case of any unexpected selling pressure. As an added bonus, we could see a rebound based on the crypto's seasonality.
The only question that remains is: How should you invest that $1,000 in Bitcoin? The obvious choice is to put the money into the new spot ETFs. But you could just as easily invest that money directly into Bitcoin via a cryptocurrency exchange such as Coinbase, or via a trading platform such as Robinhood Markets (HOOD +0.98%).
As long as you're willing to accept the inevitable risk and volatility, investing in Bitcoin could end up being one of the best decisions you make all summer.
