After a historic start to the year with the approval of 11 new Exchange Traded Funds (ETFs), Bitcoin (BTC -1.11%) fell nearly 20% following the landmark decision and remains more than 10% below today's peak. In an event shaping up to be a classic “buy the rumor, sell the news,” hopes that the cryptocurrency’s new home on Wall Street would mean it only goes up from here may need to be reconsidered become.
Yet despite the decline (and to the dismay of critics), Bitcoin remains in a healthy position as the prospect of a bull market looms. From now on, any chance to grab Bitcoin as it slides should be viewed as an opportunity. Here's why.
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A natural phenomenon
Bitcoin is known for its volatility. Over its 15-year history, there have been about eight drawdowns of more than 50% and three that resulted in a correction of more than 70%. These pullbacks usually mark the beginning of bear markets. But even when things are going well and Bitcoin is in a bull market, significant declines can occur.
For proof, look at the recent Bitcoin bull run in 2021. On the way to its current all-time high, there were about five instances where Bitcoin lost more than 20% over the course of a week or two. At one point in 2021, it slipped 50% as it fell from $58,940 in May to $29,800 in July. Remarkably, from then on, the amount doubled to almost $69,000 in just four months.
This turbulent price action often scares investors, but there are common-sense explanations that help put Bitcoin's volatility into context. First of all, we must remember that Bitcoin is traded around the world 24 hours a day, seven days a week. Without special trading hours like on the stock exchange, Bitcoin is a true international currency. Additionally, the majority of trading is done using leverage. That is, when Bitcoin moves through levels where significant interest is building, the moves are sharpened and sudden.
The fundamentals remain intact
Given some additional context showing that Bitcoin is no stranger to declines even in bull markets, investors should have some reassurance that nothing out of the ordinary has happened. Considering the growth of Bitcoin's key fundamentals, confidence that these setbacks are only minor speed bumps on the path to price appreciation should only increase.
At its core, Bitcoin is nothing more than an open-source network where users can transact directly with each other. To remain viable, it is imperative that Bitcoin becomes more decentralized, secure, and resilient over time. Luckily it is.
An important key figure that records the development of Bitcoin is the so-called hash rate. Hash rate is used to quantify Bitcoin's computing power and is one of the most important statistics investors can use to measure the strength and overall health of the network. As it turns out, Bitcoin’s hash rate is just below its all-time high. It peaked in early January 2024 and there are more miners and nodes participating in the network than ever before. Today, it is estimated that the total computing power of the Bitcoin blockchain network is 500 times greater than that of the world's most powerful supercomputers.
Not only is the network becoming more robust, but adoption trends continue to increase positively. As evidence of this, take the total number of digital wallets with a Bitcoin balance. Today there are more than 53 million wallets with different amounts of Bitcoin. That's 10 million more names than a year ago and twice as many as five years ago.
Smooth and stable
On the face of it, Bitcoin's recent volatility could be misleading and potentially worrying. But considering the magnitude and frequency of its corrections, even in bull markets, Bitcoin's recent decline is par for the course.
In fact, one could argue that Bitcoin has never been in better shape. While the price fluctuates, the resilience and growth of the network remain refreshing constants. Until any indicators point to a lack of fundamental strength, consider this and any future dips as a reason to snap up the world's original cryptocurrency at a discount.
RJ Fulton holds positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
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