After a historic start to the year with the approval of 11 new exchange-traded funds (ETFs), Bitcoin (BTC -0.99%) fell by nearly 20% in the wake of the landmark decision and remains down more than 10% from the peak today. In what is shaping up to be a classic “buy the rumor, sell the news” event, hopes that the cryptocurrency’s new home on Wall Street would mean it only goes up from here might need some reconsidering.
Yet, despite the pullback (and to the dismay of critics), Bitcoin remains in a healthy position as the prospects of a bull market loom. From here on out, any chance to grab Bitcoin while it slips should be viewed as an opportunity. Here’s why.
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A natural phenomenon
Bitcoin is known for its volatility. Over the course of its 15-year history, it has experienced roughly eight drawdowns of more than 50% and three resulting 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, it can experience significant declines.
Take a look at Bitcoin’s last bull run in 2021 as evidence. On the way up to its current all-time high, there were roughly five instances when Bitcoin shed more than 20% over the course of a week or two. At one point in 2021, it slipped 50% when it fell from $58,940 in May to $29,800 by July. Remarkably, from there it went on to more than double in a matter of just four months when it soared to nearly $69,000.
This turbulent price action often scares investors, but there are reasonable explanations that help contextualize Bitcoin’s volatility. First, we must remember that Bitcoin trades 24 hours, seven days a week, all around the world. Devoid of any specific trading hours like the stock market, Bitcoin is truly an international currency. Furthermore, the majority of trading that occurs is done with leverage. That means that when Bitcoin moves through levels where significant interest piles up, the moves are exacerbated and sudden.
Fundamentals remain intact
With some additional context showing that Bitcoin is no stranger to drawdowns even in bull markets, investors should have a bit of reassurance that nothing out of the ordinary has occurred. In fact, when accounting for growth in Bitcoin’s key fundamentals, confidence that these pullbacks are just minor speed bumps in its journey of price appreciation should only solidify.
At its core, Bitcoin is nothing more than an open-source network where users can conduct transactions directly with each other. To remain viable, it is imperative that Bitcoin grow more decentralized, secure, and resilient over time. Fortunately, it is.
One key metric capturing Bitcoin’s evolution is known as hash rate. Used to quantify Bitcoin’s computing power, hash rate is one of the most important statistics investors can use to measure the network’s strength and overall health. As it turns out, Bitcoin’s hash rate is just off its all-time high. It hit a peak in early January 2024, and there are more miners and nodes participating in the network than ever before. Today, it is estimated that the Bitcoin blockchain network’s total computational power is 500 times greater than the world’s most powerful supercomputers.
Not only is the network growing more robust, but trends in adoption continue to grow favorably. Take the total number of digital wallets with a Bitcoin balance as evidence of this. Today, there are more than 53 million wallets holding varying amounts of Bitcoin. That’s 10 million more names than just a year ago and twice the amount seen five years ago.
Smooth and steady
On the surface, Bitcoin’s recent volatility could be misleading and potentially troubling. Yet, when considering the scale and frequency of its corrections, even in bull markets, Bitcoin’s recent pullback is par for the course.
In fact, one could argue that Bitcoin has never been in better shape. While its price bounces up and down, the network’s resilience and growth remain refreshing constants. Until any indicators hint at a lack of fundamental strength, consider this dip, and any future ones, as a reason to grab the world’s original cryptocurrency at a discount.
RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
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