Compared to a dismal 2022, Bitcoin (CRYPTO: BTC) is on a tear in 2023. Since the beginning of the new year, the world’s most valuable cryptocurrency is up more than 70% year to date. While this jump in prices is refreshing, especially when considering it has accomplished this in less than four months, Bitcoin still remains almost 60% off its all-time high.
This dichotomy between a recent rally but still well off from its previous highs makes evaluating Bitcoin’s current position a little difficult. However, there are two charts that might add some perspective and shed some light on whether the cryptocurrency is a buy or a sell today.
Hash rate continues to climb
One of the primary investment theses for Bitcoin is that it is one of the most decentralized and highly secure networks in the world. While this is true, how can we be sure? Thankfully there is a metric that quantifies this decentralization and security.
Known as hash rate, this statistic measures the amount of computational power required to mine one block on the Bitcoin blockchain. As hash rate increases, it becomes more difficult to mine Bitcoin blocks, and thus increases the security and decentralization of the network. There are quite a few dynamics at play when it comes to hash rate, but what investors should know is that today Bitcoin’s hash rate sits just below its all-time high.
Image source: TradingView.
While Bitcoin’s price has gone through multiple bear markets and crypto winters, there has been a clear trend of its hash rate increasing with time, regardless of market conditions. It is difficult to emphasize just how important this is.
As long as its hash rate continues on this upward trend, the premise of investing in Bitcoin remains intact.
Opportunity abounds as prices remain discounted
Although Bitcoin’s hash rate sits at record levels, its price remains well off from the November 2021 all-time high of nearly $69,000. The cycle of Bitcoin hitting seemingly impossible new highs every few years is a recurring theme, but so is its subsequent dramatic fall from those levels.
Based on the chart below, we can get our bearings on Bitcoin’s current standing in these boom-and-bust cycles that have become so common.
Image source: TradingView.
Today, as mentioned, Bitcoin is far from its all-time high. But rather than just showing price, this chart shows the percent decline from Bitcoin’s previous all-time high. While we aren’t trying to time the market, imagine that you bought Bitcoin every time it fell into these deep troughs. It’s in these deep valleys where the most lucrative returns are found.
While hindsight is always 20/20, today Bitcoin is once again at a low point in this chart. Although it might sound like timing the market, the true goal here is to find occasions when Bitcoin’s valuation does not match its worth and long-term potential, thereby creating a rare buying opportunity.
The combination of Bitcoin’s low price and its hash rate now near an all-time high is likely the only argument needed to warrant an investment in the cryptocurrency today. While we can never have certainty, should the next bull market arrive, those who invest today may be poised to reap the greatest rewards.
RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
