Bitcoin (BTC +4.22%) is dropping like a rock, down by 22% in the past seven days alone (as of Feb. 5). Investors are either panicking or resigned to their fates, and social media is alight with hyperbolic predictions that the end of cryptocurrency itself is nigh. What's more, with the coin down significantly during the past 12 months as well, it's unclear whether the bear market is just getting started. The uncertainty is demoralizing investors even more.
So is this coin going to survive, and is it still a buy?
Image source: Getty Images.
This crash hurts more than normal volatility
This crypto sell-off feels worse than usual because it's happening alongside a wider collapse in risk assets, including software stocks.
Rather than performing like a refuge from turbulence, Bitcoin is behaving in a highly correlated fashion with tech stocks to the downside -- but it never quite exhibited the same correlation to the upside. Those same holders have also been watching the prices of precious metals like gold and silver absolutely fly during the past months as investors sought safe investments, during which time the coin's price went down and then down some more.
That's not the only thing creating poor sentiment. Michael Burry, the legendary portfolio manager best known for being depicted in the movie The Big Short, is arguing that Bitcoin has no use case that would arrest a declining price.
CRYPTO: BTC
Key Data Points
So, suffice it to say, times are bad in Bitcoin land.
Buy when it makes you feel uneasy
Let's get one thing straight. Nothing has fundamentally broken or changed with Bitcoin's investment thesis, despite the terrible price action, and despite the predictions of doom that are circulating everywhere right now.
Within that thesis, the most important constant is that the rate of production of new Bitcoin will be lower in the future than it is now. Thus, no matter how bad things get in the short term, the odds of it being higher in the long term are still much better than the odds of it being lower.
What's more, the best time to buy crypto usually feels unpleasant.
Therefore, if you have a long time horizon, the most rational response to this downturn, assuming you want to own Bitcoin at all, is to start buying it via dollar-cost averaging (DCAing). This means investing equal amounts at regular intervals regardless of price. Remember, the times when you are the least likely to want to buy the coin, when its price is absolutely in the gutter, are also the times of peak opportunity. DCAing makes sure you seize the moment, even if it might feel like a bad decision.
Bitcoin will survive this setback. But, right now, is Bitcoin a buy for someone who's going to lose sleep when the price turns red?
No, not yet. The coin could fall significantly further from here, which would likely cause a lot of headaches, even with DCAing.
On the other hand, for those who can handle a difficult hold, now's the time to be loading up. That's what I'm doing.
