The world's most valuable cryptocurrency, Bitcoin (find out how to invest in BTC trading via Bitcoin Pro), has followed the trend of the general weakening of the digital goods market in recent months. Since it hit an all-time high of nearly $ 69.000 on November 10, it has dropped about 36% (as of March 25). Bitcoin's price per coin is now just over $ 44.000 as investors are increasingly moving away from riskier assets.
With the recent pessimism surrounding it, now could be a great time to buy Bitcoin.
A difficult time for cryptocurrencies
The surge in inflation in recent months has led the Federal Reserve to raise interest rates, with other measures planned for the rest of the year. While it is a sign that the U.S. economy is booming, investors unsurprisingly see these developments as the beginning of the end of an easy money policy that is usually supportive of higher asset prices. And that means moving portfolios away from high-yielding stocks and cryptocurrencies.
But for the past two weeks, the price of Bitcoin has been on a steady upward trend. Cryptocurrencies are known to be extremely volatile. However, if you look at the young history of the asset class, it has always managed to rebound from weak periods to reach new highs. I think this will eventually be the case with Bitcoin.
Add Bitcoin to a well diversified portfolio
I believe it makes sense to have some exposure to cryptocurrencies (no more than 5%) in a well-diversified and long-term focused portfolio. Bitcoin, launched in 2009, is the most established digital asset around. And for that reason, it has a ton of financial infrastructure that supports it and helps it go mainstream.
Investors can easily buy Bitcoin through a number of different brokers, such as Block, Coinbase, or Robinhood. These companies are working to reduce friction for people who want to enter the world of cryptocurrencies.
There are two main arguments why the price of Bitcoin should rise over time. The most popular argument is that Bitcoin could become the digital equivalent of gold as a legitimate store of value. Based on Bitcoin's total market value (as of March 25) of $ 843 billion, it is expected to rise nearly 100% to be on par with all the gold in the world, which is now worth $ 10 trillion.
What will happen with the regulation?
Bitcoin also has the potential for real use cases, particularly in less developed countries. For example, remittances involve heavy fees and slow processing times. Bitcoin is a natural solution for people to send money to their home countries with minimal costs and instant settlement. A situation like this would lead to higher demand for Bitcoin, and this ultimately means an appreciation of the asset.
It's also important to understand the bigger bear argument for Bitcoin (and cryptocurrencies more broadly), which has to do with regulation. Last year, China made it illegal to use or mine cryptocurrencies, and there is concern that other large economies may take a similar stance. Here in the United States, the Biden administration has just signed an executive order asking various government agencies to study the risks and opportunities of digital assets. I see this as a positive development. Therefore, I don't think the US will ban cryptocurrencies, as they want to remain a global leader when it comes to innovative technologies.
Bitcoin's current price (as of March 25) is about a third lower than it was less than five months ago, making it a good time to buy down.