After a historic start to the year with the approval of 11 new exchange-traded funds (ETFs); Bitcoin (BTC -1.66%) The stock fell nearly 20% following the landmark decision and is still down more than 10% from its peak. In what is becoming a typical “buy the rumor, sell the news” event, we hope that with cryptocurrencies finding a new home on Wall Street, we may need to reconsider the idea that they can only rise from here. ing.
But despite the pullback (and despite the disappointment of critics), Bitcoin remains in a healthy position as the prospect of a bull market looms. Going forward, any chance to acquire Bitcoin while it is on the decline should be seen as an opportunity. Here’s why:
Bitcoin is known for its high volatility. In its 15-year history, there have been approximately eight drawdowns of more than 50% and three that have resulted in corrections of more than 70%. These declines usually signal the beginning of a bear market. But even if things go well and Bitcoin is in a bull market, a significant drop could occur.
For proof, take a look at Bitcoin’s last bull run in 2021. On the way to its current all-time high, there were approximately five instances where Bitcoin fell by more than 20% in a week or two. At one point in 2021, the stock fell from $58,940 in May to $29,800 in July, a 50% decline. Remarkably, it more than doubled in just four months from there, reaching nearly $69,000.
Although this wild price movement often scares investors, there is a rational explanation that helps put Bitcoin’s volatility into context. First, you need to remember that Bitcoin is traded around the world 24 hours a day, 7 days a week. Bitcoin is truly an international currency, with no specific trading hours like the stock market. Furthermore, the majority of trades that take place are done using leverage. This means that when Bitcoin passes through a level of great interest, the move gets worse and more sudden.
The basic parts remain the same
Additional context showing that Bitcoin can experience drawdowns even during bull markets should give investors reassurance that nothing unusual is happening. In fact, given the growth in Bitcoin’s key fundamentals, we are increasingly convinced that these declines are just small speedups in the process of rising prices.
In essence, Bitcoin is nothing but an open source network that allows users to conduct transactions directly with each other. In order to continue to exist, it is essential that Bitcoin becomes more decentralized, secure, and resilient over time. Fortunately, yes.
One of the key indicators of Bitcoin’s evolution is known as hash rate. Hashrate, used to quantify Bitcoin’s computational power, is one of the most important statistics investors can use to measure the strength and overall health of the network. After all, Bitcoin’s hashrate is just above its all-time high. It peaked in early January 2024, with more miners and nodes joining the network than ever before. Currently, the total computing power of the Bitcoin blockchain network is estimated to be 500 times that of the world’s most powerful supercomputer.
Not only are networks becoming more robust, but adoption trends remain on track. As evidence of this, consider the total number of digital wallets with Bitcoin balances. Currently, over 53 million wallets store varying amounts of Bitcoin. That’s 10 million more than he had just a year ago, and double his number five years ago.
smooth and stable
On the surface, Bitcoin’s recent volatility is misleading and potentially problematic. However, given the size and frequency of corrections, Bitcoin’s recent decline is not surprising, even in a bull market.
In fact, some would argue that Bitcoin is in better shape than ever before. Prices may fluctuate up and down, but the network’s resilience and growth will always remain fresh. Until some indicators point to a lack of fundamental strength, consider this and future declines as reasons to grab the world’s original cryptocurrency at a discount.
RJ Fulton has a position in Bitcoin. The Motley Fool has a position in and recommends Bitcoin. The Motley Fool has a disclosure policy.