In 2008 a whitepaper was released introducing one of the most revolutionary pieces of technology ever created, Bitcoin. Since its creation, blockchain and consensus mechanisms have enabled the future of smart contracts and peer-to-peer transactions, essentially creating the entire industry of decentralized finance (DeFi).
Traditionally, Bitcoin has been one of the most volatile assets to ever exist and there is no evidence of that changing anytime soon. As price continues to fluctuate, many individuals ask themselves, when is the right time to actually purchase Bitcoin?
Is Now A Good Time To Buy Bitcoin?
Considering Bitcoin is extremely volatile, predicting the best time to buy can be difficult. To help us determine when the best time to buy may be, it is important to take a look at previous market cycles.
After the Bitcoin rally in 2013, the price of Bitcoin depreciated from $1,200 down to $200 leading to a nearly 85% decrease in value. The rally in 2017 marked all-time highs for Bitcoin, reaching roughly $20,000. Within the following years the price of Bitcoin depreciated to about $3,200. This bear market led to over an 80% decrease in value from the local high.
Taking a look at the current Bitcoin cycle which started in 2020, price reached all-time highs of $69,000 and eventually fell to roughly $29,000. Now although this cycle may not be over, historical price movement tells us that the price of Bitcoin may fall lower.
In situations like these where price is extremely volatile, the best way to purchase Bitcoin would be to dollar-cost average. Dollar-cost averaging is an investment strategy where an individual divides up the total amount they want to invest and makes purchases periodically rather than one large purchase.
For example, Bitcoin price drops to $20,000 after a purchase at $45,000. Now that investor is down over 50%. Well if the investor dollar-cost averaged they could have made smaller purchases as price decreased, lowering their average buy-in price.
Alternatively, Bitcoin rises to $65,000 after a purchase at $45,000. If the investor dollar-cost averaged their price, they would have missed a small amount of profits, although they would be much safer. This is a much more efficient way to purchase Bitcoin while minimizing the risk and maximizing reward.
What Determines the Value of Bitcoin?
In a literal sense, the value of Bitcoin is determined by network effects, meaning that the value is derived by the amount of individuals trading Bitcoin. More literally, Bitcoin’s price is determined by supply and demand for the coin. As more people want to purchase Bitcoin, the price will increase, as supply is relatively stable.t. Bitcoin was the first cryptocurrency created, initiating an entire industry of decentralized finance.
Block rewards and market sentiment also play a role in determining the value of Bitcoin. Every 4 years the amount of Bitcoin rewarded to miners halves, slowly changing the supply in circulation, which affects the price.
Why Is Bitcoin Moving?
When looking at how assets move, it is important to consider the macro-psychology behind these markets. Traditionally when Bitcoin rallys, decentralized finance and cryptocurrency gain a lot of media attention. This attention is followed by what is called ‘the development stage’.
This is where more developers turn to building smart contracts and every day individuals start to realize the impact and importance of blockchain technology. Inevitably, the development stage brings new technology, which then brings more media attention and more users, eventually restarting the entire cycle.
Taking a look at this 2020-2022 cycle, it seems as if cryptocurrency and DeFi have experienced a peak in media attention. Market sentiment has also been falling as the price of Bitcoin has struggled to gain momentum, indicating this may be the beginning of the development stage.
Can Bitcoin Hit A New All-Time High In 2022?
It is definitely possible for Bitcoin to hit a new all-time high in 2022 considering its extreme volatility, although price would need to see some buying pressure. If Bitcoin establishes another leg of its cycle, the price will have the potential to go above $70,000. In order for this to happen Bitcoin needs to clear it’s strong resistance at $58,000. Breaking these levels would make Bitcoin even more volatile as these are well-established levels of resistance.
Where to Buy Bitcoin
Traders can choose from many different crypto exchanges, a few of them being Coinbase Global Inc. (NASDAQ: COIN), Webull, eToro, Gemini and Voyager. A centralized exchange is a great way for individuals to start buying cryptocurrency. Make sure to take a look at what each exchange has to offer, as they do offer different features for investors.
Will Bitcoin Keep Crashing?
Historically, when Bitcoin reaches an all-time high and its price has topped, the price drops in a short period of time. After this drop in price, consolidation occurs before it enters the next bull run, which leads to dramatically volatile prices. If these historic cycles of Bitcoin price continue, it is likely that Bitcoin will not be a stable asset any time soon.
Keep in mind that this is not financial advice, always make sure to do your own research as these are very volatile assets.
Is Bitcoin a buy under $21K?
Bitcoin looks like an attractive investment under $21k considering thats down about 70% from its all time high. However, never make an investment without doing your own research.