July Was 2022's Best Month for Bitcoin, But That Isn't Saying Much

Crypto prices are up after a horrific June, but we're not out of the woods yet.

Cryptocurrency prices had an extraordinary 2021, but have crashed in 2022. Many investors are underwater, meaning their coins and tokens are now worth less than they paid for them. Indeed, a lot of cryptos are down 90% on their highs in what many observers have dubbed a "crypto winter." 

In July, Bitcoin (BTC) posted its biggest monthly percentage price gain this year. This came in spite of the Federal Reserve's decision to raise interest rates by another 0.75% and fears that the economy could be entering a recession. Does that mean the worst is behind us? Has crypto finally bottomed out? Let's find out.

Bitcoin's best month this year

After a horrific June, the price of Bitcoin rose 18% in July -- its biggest percentage increase since the start of this year. Gaining 18% the month after a 38% loss is certainly better than piling on more losses. But as you can see from the table below, Bitcoin still hasn't even begun to erase June's losses. 

Moreover, it needs to gain 65% to reach what it was worth at the end of January. The lead crypto is struggling to reach the $25,000 mark and is worth a fraction of its all time high. Many analysts are still cautious about August -- which has historically been a bad month for crypto prices. All in all, it is early days and we're still not out of the woods.

Bitcoin's 2022 monthly finishes

What it means for investors

Some investors are hoping crypto prices will rally because it will end the stress of watching ever-dwindling portfolio values. Others want to buy at the low, but that can be a dangerous investment strategy. Not only is it almost impossible to do, but it can mean investors stay on the sidelines indefinitely, always hoping for a lower price. For sure, there are several factors that may cause prices to fall further. But there's also a chance that some have already been priced in.

For example, we still don't know what shape increased regulation will have or what impact it will have on the market. It could take time to rebuild confidence in the market after the collapse of Terra (LUNA) and several crypto lending platforms. Finally, we don't know how bad the energy crisis in Europe will be, nor what might happen next to the U.S. economy. 

As a crypto investor, rather than focusing on whether this is the bottom, here are two questions to ask yourself:

1. Do you have money you can afford to lose?

Cryptocurrencies are high-risk assets and the prices could fall to zero. This is a relatively new and unregulated market, and there are no guarantees about how it might perform. As a result, the golden rule of crypto investing is to only spend money you can afford to lose. Try to ensure crypto only represents a small percentage of your overall investments. That way you can benefit if the prices skyrocket, but you won't be devastated if prices fall.

Before you open an account with a top crypto exchange, get on top of your other financial goals such as retirement savings, building an emergency fund, and paying down debt. Don't prioritize crypto investments over building the financial foundations that will help you build long-term wealth. 

2. Do you believe in Bitcoin's long-term potential?

If you invest for the long term, you're less likely to lose sleep over short-term market fluctuations -- even if those fluctuations are dramatic. Take your time and research why people think Bitcoin could outperform other assets as well as why others remain skeptical. That way you can make your own decisions. If you are optimistic about Bitcoin's potential in the coming five, 10, or even 20 years, now might be a good time to invest. Prices may fall further, but they are still low compared to those we saw last year. 

One way to minimize the risks is to use dollar cost averaging. This involves breaking down your investments into smaller amounts at set intervals. For example, let's say you want to buy Bitcoin and have $500 to spare. You might divide it into five purchases of $100 worth of BTC each month instead of spending $500 in one lump sum. That way, if crypto prices fall again, you'll pick some up at the lower price. If prices increase, you'll have bought some before they went up.

Bottom line

It's easy to get carried away by a 18% monthly price increase, but the wider macroeconomic factors that have contributed to crypto's losses are still very much in play. If you decide to buy crypto, consider ways to insulate yourself against risk such as ensuring it is part of a diversified economy and using dollar cost averaging to protect yourself against volatility.