This article is not intended to be and does not constitute investment advice. It is for general purposes only and does not take into account your individual risk appetite and financial circumstances.
2022 has been rough on Bitcoin, to say the least.
This is in marked contrast to the crypto market’s fervour just a year ago, when Bitcoin hit two record price highs: surpassing US$60,000 in April 2021, and peaking at nearly US$65,000 in November. Remember, these prices are for ONE Bitcoin!
But as we rang in the new year with a distinctly gloomy global economy — the Russia-Ukraine war, surging inflation, and interest rate hikes, to name but a few — investors lost their nerve, and Bitcoin’s price began to quake.
By June 2022, Bitcoin (and other cryptocurrencies) fell about 68% from its previous highs. Today, the price hovers around US$23,000, a mere shadow of its former glory.
So, does it still make sense to buy Bitcoin? We believe so.
Let’s talk about why this market crisis can actually be a good opportunity for investors to increase their exposure to Bitcoin — provided you have the ability to stomach major volatility ahead.
Bitcoin will not go to zero. Here’s why.
During the crypto crash of 2022, the price of Bitcoin fell below US$19,000. For investors who entered this market during the bull run of 2021, this unprecedented low triggered fears of a free-fall down to zero.
But experts believe there is virtually no chance of this happening. While the market has undergone upheavals, the fundamental investment thesis for Bitcoin hasn’t changed a single bit, namely:
● Bitcoin is increasingly seen as a store of value, similar to a form of digital gold.
● Bitcoin is limited to 21 million and programmed into its code and with its governance decentralised, it is next to impossible to change. Increased demand and acceptance and fixed supply will drive Bitcoin price and value over the medium term.
● Bitcoin has become part of the financial infrastructure, being used for payments by companies like PayPal, accepted by regulatory authorities such as Bank of International Settlements and the El Salvador government. It is now even offered as a retirement savings plan option in the US.
● Bitcoin is different to other cryptocurrencies, in that it is the most secure and decentralised, making it better suited as a store of value. The other cryptocurrencies are more technology investments, which could also be very lucrative investments but have a fundamentally different investment thesis compared to a scarce store of value like Bitcoin.
With such widespread adoption and institutional acceptance of its value, it’s extremely unlikely for Bitcoin to plummet to zero.
In fact, Bitcoin’s price appears to have bottomed out. Following its US$19,000 low in June, the price rallied to about US$23,000 at the end of July. This uptick appears relatively stable and could develop into a steady climb, prompting some investors to rejoice that the crypto winter is beginning to thaw.
This sentiment is echoed by experts, who believe that Bitcoin is undervalued at the moment. Analysts at JPMorgan Chase, Fidelity Investments and D.A. Davidson estimated Bitcoin’s value to reach between US$38,000 and US$50,000 in the next two years — that’s about double its current price.
Existing Bitcoin hodlers: Is it time to accumulate more?
If you have been holding on to your Bitcoin throughout the crypto crash of 2022, you deserve a salute. It takes a will of iron to hang on to Bitcoin in the current market environment, especially if you have significant paper losses.
It’s worth noting that nothing about Bitcoin’s fundamentals has changed this year. All signs of 2022’s crypto winter point to a swing in investor sentiment — and, very likely, loss of access to easy money as interest rates shot up this year — and NOT to the investment case of Bitcoin itself.
As the grandfather of all crypto assets, its key strengths are:
● Its technology: The immutable blockchain ledger provides security and confidence that it cannot be manipulated, and is expected to disrupt diverse industries
● Potential as a store of value: Due to the hard cap of Bitcoins that can be mined and increased mainstream acceptance that it is a store of value
● Institutional adoption: Not only businesses and individuals, but regulators and governments are also coming on-board
Despite the recent market correction, we believe Bitcoin’s long-term impact remains. It is the crypto asset that has already kicked off massive changes in the way we think about and use money, and it’s here to stay.
Bitcoin’s true believers and hodlers can view 2022’s crypto crash as an opportune time to purchase more Bitcoin with the intention to hold it for the long haul.
New to Bitcoin: Why is it a good time to enter the market?
During the crypto craze of 2021, some investors shied away from dabbling in Bitcoin because of its high price. But since the recent crypto crash has caused the coin to plummet to previously unheard-of lows, the same investment can net you nearly three times the amount of Bitcoin as compared to its peak.
In addition, analysts from the likes of JPMorgan Chase and Fidelity Investments believe that the price of Bitcoin should more or less double in the near term. If they are right, there’s a chance that a well-timed investment into Bitcoin now (at its current low price) will result in significant returns.
However, new investors should thoroughly understand the case for investing in Bitcoin for the long haul — and the risks — before taking on this exposure.
Crypto is an incredibly volatile asset. Investors need to be both financially and mentally prepared for wild swings in prices, especially around major events like Federal Reserve interest rate hikes. Coinrule founder Oleg Giberstein has a good rule of thumb: invest an amount you are comfortable with and try not to worry about crypto prices for the next two years or so.
Fundamentally, Bitcoin should be a part of a diversified portfolio, and only a small proportion of it at that. Financial experts like Paul Tudor Jones recommend allocating 5% of your total investments to Bitcoin, but do assess your own risk tolerance and goals before deciding on how much to invest.
Investing in Bitcoin still makes sense in 2022
Let’s recap: The crypto market underwent a major crisis this year, and the price of Bitcoin has fallen to about a third of its peak in 2021.
While the crypto crash has left many shaken, the fundamental case for investing in Bitcoin has not changed in the least. Bitcoin still remains the world’s most accepted cryptocurrency and is already highly entrenched in our financial systems.
At its current low price, Bitcoin is attractive to both investors looking to enter the market as well as existing investors looking to increase their Bitcoin holdings. That said, investors must be able to stay the course as the current climate is no doubt a turbulent one for crypto in general.