Bitcoin (BTC-USD) may be one of the most volatile assets on the market today. However, it can also be one of the most profitable — if investors choose to have patience, buy in thoughtfully and hold it for the long term.
Created in January 2009, Bitcoin is over 13 years old but the cryptocurrency has yet to run out of steam. However, it has become a massive asset, and old strategies to invest in Bitcoin are becoming obsolete.
The unique aspect of Bitcoin is how it is generated. In simple terms, Bitcoin is generated through mining, where a miner allocates his computing resources to the Bitcoin network and is rewarded by getting Bitcoin in return. The miner can then sell those Bitcoins to an online exchange for other currencies.
However, every few years, the rewards are cut in half. As a result of this halving, BTC spikes in value every few years. This spike is called a bull run.
As a result of these supply algorithms, Bitcoin can be very profitable to hold for the long term.
Bitcoin’s Price Stabilization Requires More Realistic Goals
It is crucial to mention that these bull runs are becoming less and less profitable, and the crashes that follow these price increases are becoming less significant.
According to a chart shared by Colin Talks Crypto, from the peak price of $31 in 2011, Bitcoin’s value rose by 3700%-plus in less than a year to $1,153. The next major bull run of 2017 saw a 1700%-plus gain for Bitcoin from the previous high. Moreover, each bull run had a follow-up crash of 94%, 85%, and 84%, respectively.
According to CoinMarketCap, the last bull run of 2021 saw an all-time high (ATH) of $68,863, a 340%-plus increase from the previous ATH with a crash of 46%. These metrics show that BTC has seen quite a significant price stabilization, and if trends continue, Bitcoin might no longer be as risky as it currently is.
However, a significant side effect of this stabilization is that you will have smaller returns investing in BTC. Bitcoin currently has a massive market capitalization, and you should target realistic goals even when making a long-term investment in Bitcoin.
Another thing to mention is that Bitcoin still does not have many use cases. Some exchanges offer crypto cards, which is excellent, but adoption is still relatively slow. Even then, merchants receive fiat currency for the crypto balance deducted from your card, which doesn’t promote more vendors accepting cryptocurrency. In the future, this type of adoption could hurt the demand for Bitcoin.
For the vast majority of people, BTC is more of an investment than a currency. It is likely to remain that way for years or even decades. Unfortunately, most investors still have unrealistic goals when investing in crypto. However, due to the reasons I’ve stated before, more realistic returns on Bitcoin should be targeted — and seem quite achievable.
Dollar Cost Averaging Looks Better and Better
Due to the volatility of Bitcoin, dollar-cost averaging can be one of the best investment strategies. Especially in 2022.
The current state of BTC does not seem to be a bad time to start dollar-cost averaging in with small amounts of money. The only time I would suggest aggressive purchases of Bitcoin would be after a significant crash. Buying at that point is very likely to give you heavy long-term returns on your investment, but even then, you should dollar-cost average instead of going lump sum.
Bitcoin has started to move in sync with the stock market, and the current stock market recovery is likely to increase confidence. If the recovery continues, BTC could have some short-term gains.
It is worth mentioning that except for Bitcoin and Ethereum (ETH-USD), you should not dollar-cost average other cryptocurrencies for the long-term. The vast majority of altcoins die off within a few years, or even a few months. BTC and ETH are the only long-term safe options for dollar-cost averaging.
Should You Buy Bitcoin Right Now?
As I’ve mentioned before, BTC has started to move in sync with the rest of the market. Although the market has recovered in the short term, one should not forget that the Federal Reserve still has to combat inflation. The best way to do so is through rate hikes, and it will have a significant impact on assets such as Bitcoin.
Of course, there’s no immediate risk. However, Bitcoin is very volatile, and a sudden crash will do more damage to your portfolio in a day than what inflation can do in years. Thus, I believe that it is better to dollar-cost average Bitcoin with modest amounts of money, at least until the economic uncertainty has lapsed.