Is it time to buy now that bitcoin has died?

From a peak of approximately US$70,000 per unit in November 2021, bitcoin’s value has dropped by more than half to around US$30,000 today. The broader cryptocurrency market has also crashed.

The answer is that bitcoin dies frequently. At least seven other times, it has dropped by 50% or more.

Whether you like or dislike bitcoin, its core characteristics haven’t changed, and there’s no use in reiterating them. But, in terms of pricing, chances are that, like every previous time bitcoin died, or the stock market or oil plummeted, this will not be the last time the cryptocurrency dies – it will live again to die another day.

If you believe in the fundamentals but thought in 2021, “bitcoin is so high right now – I missed the boat,” now is the chance to reconsider. While bitcoin prices may or may not have reached a bottom, many people are finding purchasing opportunities.

According to data from the Canadian exchange Bitbuy, there was a lot of crypto buying during the current turbulence. Normally, it’s roughly 50-50, but at one time in May, buy orders on Bitbuy outnumbered sell orders by a 65:35 ratio. (The overall 24-hour trading volume is approximately $1.6 million, according to the cryptocurrency price-tracking website CoinMarketCap, which is regarded as a reliable source for such figures.)

Investors have also flocked to cryptocurrency exchange-traded funds. Long-term bitcoin investors have also been adding to their holdings, according to blockchain statistics.

To be sure, buying the dip requires both going against the grain and a little behavioural psychology. To capture the price bottom before the comeback, you must buy while everyone else is filled with dread. Certainly, elements of the mainstream finance world appear to be in this state, owing to rising interest rates and a sell-off in risk assets. However, with crypto, if so many people are still purchasing, the buying-the-dip logic would imply that now is probably not the time to enter.

The rate at which new bitcoins are created is decreased in half every four years. When this occurs, it is a significant blow to supplies. About a year or so after each halving, bitcoin would surge to an unprecedented price, lifting the entire crypto market – possibly by too much, with hype outweighing facts – before prices began to plummet. Bitcoin finds a bottom about a year before the next halving. The cycle then begins again.

The next halving is scheduled for March of 2024. According to the halvings idea, bitcoin would bottom out somewhere in late 2022, or even early 2023 – close but not yet.

The caveat to all of this is that, even with all of the indicators and computations in the world, there is a lot about the markets that we simply don’t know, particularly for cryptocurrency, which has only been around for 13 years.

It is a good idea to remember the general concepts of recognising purchasing chances and going against the grain, as well as the crypto market cycles. However, as with any asset, precisely timing the market, buying cheap and selling high, is difficult, and a botched attempt frequently leaves individual investors badly burnt.

Perhaps the answer to whether this is a good time to buy is to proceed with caution, as in the old dollar-cost-averaging strategy. That is, if you believe bitcoin is a good investment at current levels, consider spacing out whatever amount you want to put into it over the next year — buying a small bit at regular intervals.

The goal would still be to buy low. It’s simply that, rather than attempting to pin the tail on the donkey at a single instant when prices may be lowest, you’d enter at the average price during a period when bitcoin is likely to hit its bottom – which is far safer.