Bitcoin's price is down 8% from February's highs. Is it time to buy the dip?

With the Bitcoin price down 8% from February's highs is it time to buy the dip? We look at the risks and opportunities of timing the market.

| More on:
bitcoin image with blue and orange circle

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Bitcoin (CRYPTO: BTC) price is down 2.3% over the past 24 hours. One Bitcoin is currently worth US$56,612 (AU$74,489).

Bitcoin is still up 95% so far in 2021 but has now retraced 8% from the US$61,556 it reached on 14 February, according to data from CoinDesk.

Which has crypto enthusiasts and newbies alike wondering, is it time to buy the dip?

Timing your entry

For an answer to that question, we turn to Simon Peters who is a market analyst at eToro. The online trading and brokerage company bought Bitcoin for its own balance sheet. This happened more than 10 years ago when it was worth $5.

Now only the most bearish crypto analysts forecast the Bitcoin price will return to those bargain-basement levels. But the notoriously volatile digital token could certainly go lower from here.

Asked whether ASX investors should wait for a potentially bigger price fall before buying Bitcoin, Peters told the Motley Fool:

Timing the dip of any asset is both risky and difficult, as the price could fall further than the point where you think the bottom is. Ideally, the investor would need to have some knowledge of reading charts and using technical indicators to identify the bottom, or very close to the bottom of a dip or retracement.

Long-term investors, those planning to buy and hold, may find it easier to dollar cost average. Buying with a fixed amount each week or month, for example, regardless of what the price is. This strategy may not yield the highest returns versus buying at the bottom of a dip, it removes the complication of trying to time the market.

Can Bitcoin shine amid renewed inflation concerns?

Crack open the financial news and you'll almost certainly run across several articles highlighting the potential risks of resurgent inflation to share markets.

You'll likely also find at least 1 article from a prominent central banker attempting to allay those fears.

We don't have a crystal ball. But the broad consensus is that whether inflation begins to impact interest rates and share markets this year or next, we can expect the erosion in the value of our fiat currencies to return.

But how about cryptocurrencies like Bitcoin? Can Bitcoin serve as an effective inflation hedge?

Here's what eToro's Peters told us:

Bitcoin has fulfilled the criteria of an inflation hedge, which is an asset that protects against the decreasing purchasing power of a domestic currency. More people are viewing it as such. This first happened with individual investors. Now we are starting to see corporations hold Bitcoin in their treasuries as an inflation hedge instead of cash.

Peters said he expects more investors will turn to Bitcoin as an inflation hedge. Especially if global governments and central banks continue their easy monetary and fiscal policy measures. That in turn, he said, should see the Bitcoin price keep rising.

What could send the price lower?

With the Bitcoin price up 670% in the past 12 months, and more institutions lending their support for the crypto asset, what tailwinds could drag Bitcoin lower?

According to Peters, there are a number of risk factors Bitcoin investors or speculators should be aware of:

Firstly, we could see government or regulatory intervention, making it harder or illegal to transact, hold, or mine Bitcoin.

Secondly, a flaw or vulnerability in the underlying blockchain could get exploited. For example, a 51% attack where miners collude to control the majority of hash rate on the network. Whilst this is very difficult to execute, it is not theoretically impossible.

Lastly, we could see price manipulation. Bitcoin is arguably not as liquid as other assets like stocks, meaning significant orders (sometimes referred to as whales) can severely affect its price.

He noted that any of these issues could see investors lose confidence in the world's biggest crypto and send the price lower.

The case for holding Bitcoin

Peters reminded us that it's been just over a year, 11 March 2020, since Black Thursday. That was the day a technical failure on the Bitcoin Mercantile Exchange (Bitmex) saw futures crash more than 50%. And the Bitcoin price crashed below US$4,000.

Since then, he told the Motley Fool, Bitcoin has gone "from strength to strength".

The case for holding bitcoin has increased over the period, with institutional investors now holding the crypto asset, as they look to alternatives to fiat currencies. With big corporations also lending their support, the future has never looked brighter for crypto assets.

Tesla's decision to both accept payment for its cars in bitcoin and hold that bitcoin on its balance sheet rather than convert it to dollars will likely build more momentum for the crypto asset.

Tesla and other companies are showing that crypto is here to stay, and its mainstream adoption is only going to increase.

With a finite supply of Bitcoin, Peters said increased institutional interest in the digital token could cause a supply-side squeeze and see prices continue to rise longer-term.

Should you invest $1,000 in Fortescue Metals Group right now?

Before you buy Fortescue Metals Group shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Fortescue Metals Group wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Bitcoin. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

Excited couple celebrating success while looking at smartphone.
Broker Notes

Bell Potter names the best ASX 200 stocks to buy in May

The broker is feeling bullish on these names this month. Let's find out why.

Read more »

Red buy button on an apple keyboard with a finger on it representing asx tech shares to buy today
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

A man casually dressed looks to the side in a pensive, thoughtful manner with one hand under his chin, holding a mobile phone in his hand while thinking about something.
Opinions

Investing in high-yield ASX stocks has two major negatives

High-yield stocks do have downsides.

Read more »

Person pretends to types on laptop drawn in sand.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a happy finish to the week for ASX shares this Friday.

Read more »

Three people in a corporate office pour over a tablet, ready to invest.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A mature age woman with a groovy short haircut and glasses, sits at her computer, pen in hand thinking about information she is seeing on the screen.
Share Market News

ASX shares in April: 8 key takeaways according to Macquarie

Here are eight key takeaways from April, according to a new note from the broker.

Read more »

Woman looking at a phone with stock market bars in the background.
Share Market News

Market outlook: Should I 'sell in May and go away'?

May is the time to sell... If you believe in fairytales.

Read more »

Five young people sit in a row having fun and interacting with their mobile phones.
Share Gainers

5 ASX All Ords stocks rocketing higher this week

Investors sent these five ASX All Ords stocks soaring this week. But why?

Read more »