Here’s Why Bitcoin’s Next Big Move Could Redefine Your Investment Strategy

After reaching a new all-time high of $73,750 in mid-March, Bitcoin (CRYPTO:BTC) has struggled mightily. The world’s most popular cryptocurrency recently fell below the $54,000 level but has since recouped some of its losses. As a result, some crypto investors are starting to abandon Bitcoin and look for better investment options elsewhere.

But I think that would be a mistake. Abandoning a long-term investment strategy after just a few months of poor performance could prevent investors from participating in Bitcoin’s next big move. Buying the dip has worked time and time again with Bitcoin, and this is turning into another opportunity.

Historical background of Bitcoin

Bitcoin is currently trading more than 10% below its all-time high set in March. That would be terrible for traditional stocks, but the size of this drop is actually negligible compared to the size of Bitcoin’s previous declines.

Cathie Wood of Ark Invest analyzed Bitcoin’s price performance and found at least five different periods where Bitcoin dropped by 75% or more. The last one occurred between November 2021 and November 2022, when Bitcoin lost almost 77% of its value. After reaching its all-time high of $69,000 at the time, Bitcoin dropped to a low of $15,797.

If you had given up on Bitcoin in 2022, you would have completely missed Bitcoin’s rapid return to $69,000. And this is a pattern that has been repeated over and over throughout Bitcoin’s history. So don’t be afraid of a drop right now. This discounted price for Bitcoin is just another buying opportunity.

As Cathie Wood points out, despite the serious declines over the last decade, Bitcoin has outperformed every major asset class over long-term time horizons. As a general rule, you will need to hold Bitcoin for at least three to four years to participate in these gains.

Image source: Getty Images.

When it comes to Bitcoin, there are even more reasons for optimism beyond just its previous price performance. Much of the reason for Bitcoin’s recent decline has been technical factors related to supply and demand or investors’ concerns about the broader macroeconomic landscape. In short, investors are not changing their minds about Bitcoin and its long-term outlook. Nothing fundamental has changed in Bitcoin itself.

Case in point: Investor inflows into new spot Bitcoin exchange-traded funds (ETFs) are returning to previous levels. After a brief dip in May and June, inflows are starting to pick up again in July. On the first day of the rebound from the long Fourth of July holiday weekend, inflows into new spot Bitcoin ETFs were $300 million. One Bitcoin ETF alone — the iShares Bitcoin Trust (NASDAQ:IBIT) — accounted for $180 million in inflows.

The story continues

How much Bitcoin should you add to your portfolio?

Of course, there’s a chance that this drop could be different from all the previous Bitcoin drops. Perhaps this drop is not temporary but the start of something more permanent. After all, past performance is no guarantee of future results, and perhaps Bitcoin will not bounce back as expected.

But given how much support there is for Bitcoin among institutional investors right now, that’s unlikely to be the case. During previous Bitcoin declines, the crypto market didn’t see demand from spot Bitcoin ETFs to absorb the excessive selling pressure. And yet Bitcoin has rebounded each time.

So now might be the time to rethink the optimal Bitcoin allocation mix for your portfolio. The higher your allocation is right now, the more positioned you will be to benefit from Bitcoin’s next big move. As a general rule of thumb, a 1% allocation to Bitcoin is conservative, while a 3% to 5% allocation is more aggressive.

Buying the dip is an investment strategy that has been very profitable for Bitcoin investors for over a decade. Despite serious declines, Bitcoin has always recovered. The hope now is that the same pattern will repeat itself once again.

Should you invest $1,000 in Bitcoin right now?

Before buying Bitcoin stocks, consider the following:

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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in Bitcoin and recommends Bitcoin. The Motley Fool has a disclosure policy.

Here’s Why Bitcoin’s Next Big Move Will Redefine Your Investing Strategy originally appeared on The Motley Fool