If you're like most Bitcoin (BTC -2.24%) investors, you're probably more than a bit concerned right now. Something is just not right. After hitting a new all-time high of $73,750 back in March, Bitcoin has been unable to find its way higher and has now dipped below the $60,000 mark. Even worse, some analysts are predicting that Bitcoin might fall all the way to $50,000 before it recovers.
But I'm still willing to ride the cryptocurrency roller coaster with Bitcoin. This cryptocurrency, famous for its wild swings and tremendous volatility, is likely to go on another bullish run by the end of the year. Here's why.
Bitcoin's volatility is a feature, not a bug
The major knock against Bitcoin is that it's simply too risky and too volatile to hold in a long-term investment portfolio. But that simply is not the case. In fact, I would argue that Bitcoin's volatility is a feature, not a bug. In short, if you want the massive-spike years when Bitcoin soars in price by 150% or more -- as it did last year -- then you must be willing to tolerate sharp downward spikes along the way.
Image source: Getty Images.
In fact, much-followed investor Cathie Wood of Ark Invest crunched the numbers last year and found at least five periods in Bitcoin's 15-year history when it collapsed in value by 77% or more. And each time, Bitcoin bounced back stronger than before. If you take a quick look at Bitcoin's trading chart over the past five years, you won't see a single, continuous upward surge in price. Instead, you'll see significant peaks and valleys.
CRYPTO: BTC
Key Data Points
For that reason, "buy the dip" investors who don't need their money in the short or medium term have gravitated toward Bitcoin. In short, they buy Bitcoin every time it falls 20% or more in price and then HODL ("hold on for dear life"). That way, they're always buying Bitcoin at a discount. That's the situation now, with Bitcoin down more than 23% from an all-time high in mid-March. And while there are no guarantees, history says it's headed up.
We're at the start of a four-year cycle
Every four years, a Bitcoin halving takes place. This event, which results in the rewards paid out to Bitcoin miners being cut in half, has a number of follow-on consequences that make Bitcoin much more attractive for investors. For example, the halving boosts the overall scarcity of Bitcoin. And it also has a disinflationary impact over the long haul, making Bitcoin more attractive to investors looking for a long-term store of value.
As a result of the halving, Bitcoin tends to move in four-year cycles. At the start of the cycle, Bitcoin slowly increases in price before suddenly skyrocketing in value to a new all-time high. Bitcoin has had three previous halving cycles -- in 2012, 2016, and 2020 -- and each time, it has generally followed this same pattern. Typically, the bullish period of the cycle lasts anywhere from 12 to 18 months.
The most recent Bitcoin halving took place on April 19, so we are still at the very start of a new four-year cycle. If you give up on Bitcoin now, just four months after the April halving, you could miss out on what has typically been the most bullish period of the cycle.
That being said, this is not an invitation to try to time the market. But simply knowing about the Bitcoin cycle helps to put its current price into perspective. Bitcoin is trading at a 20% discount, at a time when the full impact of the halving has likely not yet occurred.
Buy the dip on Bitcoin
Admittedly, past performance is no guarantee of future performance. And there's no reason to think Bitcoin will always follow a four-year cycle as it becomes an increasingly mainstream asset with both retail and institutional investors.
In fact, there are already skeptics out there who think that the launch of the new spot Bitcoin exchange-traded funds (ETFs) earlier this year may have already messed up Bitcoin's four-year cycle. All the money that should have flowed into Bitcoin after the halving in April suddenly gushed into Bitcoin in January, muting the expected halving boost.
That said, I'm still buying the dip on Bitcoin. With Bitcoin now below $60,000, you're getting an extra 20% discount on a digital asset that some money managers think could hit $200,000 by the end of 2025.
Of course, a lot of things will need to go Bitcoin's way for that to happen. But I'm fully expecting a post-election bounce for Bitcoin and another run at a new all-time high by the end of the year. But just hold on tight and buckle up because this is going to be a wild ride.
