Crypto prices have struggled in recent weeks as investor sentiment has soured. Lead crypto Bitcoin (BTC +4.43%) has dropped over 20% in the past two months. If you've been waiting on the sidelines watching prices power inexorably upwards, the current dip may well be a buying opportunity.
CRYPTO: BTC
Key Data Points
Sure, people are nervous and prices may fall further. All cryptocurrencies carry risk. But -- unlike many other cryptocurrencies -- until now, Bitcoin has always recovered and gone on to set new highs. It's the biggest, most established crypto with the most staying power. In uncertain times, that's pretty appealing.
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Why Bitcoin could perform well long-term
Despite recent losses, Bitcoin has gained over 130% in the past two years while the S&P 500 index has gained around 50% in the same period. One of the reasons Bitcoin has gained so much is that institutional investors have been adding the grandaddy of cryptocurrency to their portfolios. Bitcoin ETFs now hold over $120 billion, per Coinglass, a signal of its growing legitimacy.
Another reason for Bitcoin's gains is that some view Bitcoin as a hedge against inflation or a form of digital gold or safe haven. Bitcoin has potential. Like gold, it doesn't rely on central banks or governments, and only a finite amount will ever be produced. However, it has yet to prove itself -- the volatility we've seen in recent months raises questions about how "safe" it is.
Bitcoin still has to prove itself
Bitcoin is still a relatively new asset, and a lot of its price action is based on speculation about its potential rather than what it has actually achieved. It's all very well to say that it has always erased its losses, but there may come a day when it doesn't.
If you have $1,000 to invest right now, Bitcoin could have a place as part of a risk-adjusted, balanced portfolio. However, it won't be right for everybody. Indeed, cryptocurrency is just one of many possible investments. Don't buy just because the price has dropped; be clear about how it might perform in the coming decades.
