Bitcoin's Price Is Down More Than 50% From Its High. Is Now a Good Time to Buy?
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Bitcoin's price is plunging, which may have you wondering if now's the perfect time to buy the dip.
The cryptocurrency's price has plummeted to $32,000 per coin amid a wider stock market selloff. That's a more than 50% dive from bitcoin's high of above $68,000 per coin in November, according to data from CoinMarketCap.
Bitcoin is no stranger to price volatility, evidenced by the fact that just last week, it climbed to $40,000 before falling. Back in 2017, its price hit a high of $20,000 before crashing to below $5,000 the next year. In 2021, its price fell to below $30,000 before surging to November's record high, and seeing a 10% drop in a day is not uncommon for investors with their money in bitcoin and other cryptos, like ether or dogecoin.
Here's what you need to know about bitcoin's current plunge, and whether or not it's time for you to buy.
Why is bitcoin dropping?
Cryptocurrencies have been falling since late last week alongside a stock selloff that led to the Nasdaq Composite seeing its biggest one-day percentage decline since June 2020.
The stock market has been struggling for months as investors assess what the Federal Reserve's response to high inflation means for financial markets overall. Last week, the Fed announced it would raise its benchmark interest rate by a half percentage point, on top of a quarter-percentage point increase in March.
Raising interest rates makes borrowing more expensive, and as a consequence it helps tamp down high prices for things like groceries and gas. But it can also crimp prices for financial assets like stocks and cryptocurrency, and make investors more risk-averse.
"Institutional investors are getting out of risk assets and bitcoin is the first on the chopping block," says Ben McMillan, chief investment officer at IDX Digital Assets.
The stock market — and therefore, the crypto market — is also dealing with uncertainty surrounding the war in Ukraine which has led to a surge in commodity prices.
"It's very hard for cryptocurrency to avoid these correlations and selloffs," says Stéphane Ouellette, CEO and cofounder of FRNT Financial, a capital markets platform. But the selloff has little to do with the cryptocurrency itself, he adds.
Should you buy bitcoin now?
If you're looking for an entry point for buying bitcoin, this isn't a bad time, Ouellette says. But it depends on whether you're planning to invest in bitcoin for the long term or looking to buy and sell the speculative asset quickly.
"If you believe in the fundamental use case of cryptocurrency, I don't think that this should necessarily be a spooky time for you," Ouellette says. "But if you're trading short term, then who knows how low we can go in the very short term?"
If the stock market continues to sell off, it's very hard to imagine bitcoin isn't going to go down too. It's possible bitcoin trades below $20,000 in the short term, Ouellette adds. We just don't know.
While there may continue to be short-term pressure in markets due to macro factors, the "attributes that make bitcoin a great long term investment still hold true today," Mauricio Di Bartolomeo, co-founder and chief strategy officer of Ledn, a digital asset financial services company, told Money via email.
"With increasing adoption and banks like Goldman Sachs starting to get involved, the current environment can offer some buying opportunities for investors with long-term conviction," he adds. Goldman Sachs recently offered its first-ever loan backed by bitcoin.
Of course, not everyone is so bullish on crypto due to the risks that come along with such investments. In addition to cryptocurrency's extreme volatility and speculative nature, the lack of regulation around cryptocurrency makes its future very unclear. Fidelity Investments recently came under fire from the U.S. Labor Department and Sens. Elizabeth Warren, D-Mass., and Tina Smith, D- Minn. after announcing it would allow employers to offer bitcoin in 401(k)s.
Financial advisors recommend being extremely careful when investing in cryptocurrency, and to treat it as a long-term investment. They say it's best to invest only a small percentage of your overall portfolio in crypto, perhaps no more than 5%.
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