Bitcoin (BTC 0.69%) is down almost 60% year to date and 70% from its all-time high as broader stock market volatility and recession fears spill into the crypto market.
Despite widening Bitcoin adoption, the token continues to be treated as a high-risk asset. And in today’s rising interest rate environment, risky assets are under pressure. As the cost of capital rises, it dissuades people from speculating in new markets like crypto.
However, long-term investors could consider buying Bitcoin now. Here’s why.
Image source: Getty Images.
It’s on sale
Bitcoin tumbled below $18,000 on June 18. The entire market cap of all outstanding cryptos now is about $900 billion, which is less than Bitcoin alone was worth at its peak on Nov. 10, 2021.
As bad as the Bitcoin sell-off has been, other top cryptos like Ethereum (ETH 3.67%), Cardano (ADA 4.19%), and Solana (SOL 5.51%) are down even more as of June 21.
Bitcoin Price data by YCharts
The simplest reason to buy Bitcoin is that its fundamentals haven’t changed, but its price is much less than it was not that long ago. After Bitcoin’s massive run-up between 2020 and most of 2021, many investors felt as if they had missed out on Bitcoin. The sell-off provides a chance to buy at lower prices. However, it’s worth mentioning that an investor has to be careful of the risks of Bitcoin and how they buy and hold it.
One of the scariest elements of the crypto sell-off has been the turmoil at Celsius Network, a crypto exchange that suspended withdrawals and transfers on June 12. Celsius, like many exchanges, offers high interest rates for its users, enticing them to hold assets on its platform. But Celsius’ balance sheet appears to be impaired by the crypto sell-off to the extent it may not be able to honor withdrawals. And if Celsius goes bankrupt, users could lose their assets.
So although the fundamental investment thesis for owning Bitcoin hasn’t changed, the vulnerability of exchanges means that investors should be more careful than ever about where they buy and store their cryptocurrency.
A global store of value
The Bitcoin whitepaper, published in 2008, mainly discussed Bitcoin’s utility as an international currency independent of any sovereign nation. However, few places accept Bitcoin for payment. And mining the currency has been banned in several countries — namely China.
Bitcoin’s primary use today — at least in theory — is that it serves as a kind of digital gold with a fixed maximum supply of 21 million tokens and an existing supply of just over 19 million tokens. Bitcoin has never been hacked. And despite a few massive drawdowns, faith in its value has never gone away.
Bitcoin is less than 15 years old. And the crypto industry is still in the early stages. Today, more companies than ever hold Bitcoin on their balance sheets. Financial technology platforms are offering ways to buy and transfer crypto. And even Fidelity is offering ways for clients to invest up to 20% of their 401(k)s in Bitcoin.
Bitcoin’s utility is greatest in countries that lack their own stable fiat currency. The U.S. dollar is arguably the strongest currency globally and is the go-to currency for global trade. Even though the U.S. is experiencing 40-year-high inflation, that’s nothing compared to what developing countries experience. Bitcoin has time on its side. The longer it stays around, the stronger its investment thesis becomes.
Drawbacks of investing in Bitcoin
Bitcoin’s resilience has been proven, despite several market corrections and its adoption on Wall Street and Main Street. And while its adoption as a form of payment has gone worse than expected, it could still catch on over time.
However, one area that is unlikely to grow as much as some folks once hoped is Bitcoin’s utility. The vast majority of decentralized applications (dApps) run on Ethereum’s blockchain. Solana is another popular Layer 1 blockchain for dApps and other projects due to its speed and dirt cheap fees. However, the Solana network has gone down several times and is less decentralized than Ethereum. Cardano is emerging as a fast and decentralized Layer 1 blockchain that could rival Ethereum as well.
In sum, Ethereum, Solana, and Cardano are all arguably better than Bitcoin for building dApps that have real-world use cases.
It could get worse before it gets better
Bitcoin’s popularity has grown around the world over the last few years. Its purpose is more defined than ever before. Bitcoin is safe, slow, and incredibly decentralized. But transaction costs can be high. Therefore, it’s bad for crypto-related projects — but it has great security. Bitcoin is becoming more like digital gold. With a 43% share of the global crypto market, and a price that’s down about 70% from its high, now looks like a good time to consider buying Bitcoin.
