Bitcoin Crash: Should You Buy the Dip?

Bitcoin (CRYPTO:BTC) could be entering a new crypto winter.

Bitcoin (CRYPTO:BTC) dropped 6% yesterday and is down roughly 20% year-to-date. It’s now trading at roughly the same level it was in early January 2021, which means it has wiped out all the gains from the past year. 

Investors must now consider whether this is a temporary bump or the start of a prolonged crypto winter. Here’s a closer look. 

Bitcoin’s metrics

Bitcoin’s 40% drop from its all-time high in November puts it firmly in bear market territory. It’s worth noting that this trend is aligned with growth and tech stocks. Major tech companies have seen similar declines over the past few months, which indicates that BTC is still closely correlated with risk assets and equities in particular. 

This means that BTC probably won’t recover unless tech and growth are back in vogue. It also means that investors should measure the success of this digital asset like they would any other tech product – based on usage and utility. Over the past year, the number of active BTC addresses has declined slightly from 1.1 million to 1.05 million, according to data published by Glassnode. The last time this happened was in 2018 – the start of a multiyear crypto winter. 

Crypto winter

Crypto winter is a period of time when the price and popularity of digital assets are rangebound. In other words, it’s the bust phase of the cryptocurrency boom-bust cycle. We’ve seen multiple instances of this in the past. One of the earliest winters was triggered by the collapse of cryptocurrency exchange Mt.Gox in 2014. 

The event pulled BTC down from US$1,000 to US$100. The price wouldn’t recover for four long years, until 2017. Bitcoin hit another high at US$20,000 during this boom, but quickly dropped below US10,000 by the end of 2018. The price wouldn’t recover until the pandemic triggered another boom in 2020. 

It seems we’re at the end of that boom cycle. Search traffic for cryptocurrencies has declined substantially and the industry faces a wave of new regulations that could pull more steam out. Another crypto winter is bad news for traders, but good news for investors who are willing to make a long-term bet and hold onto their assets.   

Buying opportunities

An extended period of low prices isn’t exciting if you day trade. But if your time horizon is multiple years, this environment is extremely favourable. I entered the crypto market during the 2018 crypto winter, which allowed me to buy BTC at roughly US$6,000 and Ether (CRYPTO:ETH) at US$150. Those investments took several years to pay off and exposed my portfolio to plenty of volatility. But the capital gains have now covered this risk. 

In this cycle, I’m looking to add more exposure to niche cryptocurrencies that could benefit me over the long term. Bitcoin could certainly be on that list if it declines further. If this strategy fits your risk appetite, I recommend you take a closer look at this sector. 

Bottom line

Bitcoin’s usage and popularity seem to have waned. It could be entering another crypto winter. Long-term investors should consider adding some exposure over the course of this year. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Vishesh Raisinghani owns Bitcoin and Ethereum. The Motley Fool owns and recommends Bitcoin and Ethereum.

More on Investing

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

ways to boost income
Investing

Are Telus and BCE Stocks a Smart Buy for Canadian Investors?

Telus (TSX:T) and BCE (TSX:BCE) have massive dividend yields, but their shares have been quite sluggish!

Read more »

investment research
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

Is OpenText stock poised for a 2025 comeback? AI ambitions, a 3.8% yield, and cash flow power make it a…

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Emerging Canadian AI Companies With Big Potential

These tech stocks are paving the way to an AI-filled future, but still offer enough growth ahead for a strong…

Read more »

Young Boy with Jet Pack Dreams of Flying
Tech Stocks

Is Constellation Software Stock a Buy, Sell, or Hold for 2025?

CSU stock has long been a strong option for high growth, high value stocks. But are there now too many…

Read more »

rising arrow with flames
Investing

2 Riskier Stocks With High Potential for Canadian Investors in November

Risky stocks such as Well Health Technologies have the potential to provide life-changing long-term returns.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »