Crypto Crash: Is Bitcoin a Smart Buy Right Now?

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In recent weeks, high inflation and rising bond yields have dampened enthusiasm for more speculative assets like cryptocurrency. And the Federal Reserve’s plan to hike interest rates three times in 2022 fueled that fire, sparking the most recent crypto crash. In fact, the crypto market is now down about 35% from its all-time high.

Of course, seasoned investors know that volatility is common when it comes to managing these digital assets. The market has collapsed before, and it will almost certainly collapse again. That being said, every past downturn has been a buying opportunity, so there is good reason to believe that these headwinds are temporary in nature.

For this reason, now seems like the right time to invest, and Bitcoin (CRYPTO: BTC) is ripe for the picking. It is currently trading nearly 40% below its all-time high, but optimism from institutional investors – an increasingly bullish group on Bitcoin – could translate into 10x (or more) gains over the years. coming years. Here is what you need to know.

Image source: Getty Images.

The principle of supply and demand

With its launch in 2009, Bitcoin became the first modern cryptocurrency. He wowed the world with blockchain technology, a record-keeping system maintained by a decentralized network of miners rather than a centralized institution, like a bank. To this end, Bitcoin acts like electronic money, allowing people to conduct digital transactions without going through a bank or using a credit card.

This quality has certainly played a role in the popularity of Bitcoin, and many people believe that it could one day serve as a global currency. That said, Bitcoin is far too volatile to replace any fiat currency like the US dollar, and the current market environment is a prime example of why that wouldn’t work. Who wants money that could lose 40% of its value in a matter of weeks?

However, the importance of Bitcoin’s popularity should not be overlooked. Although it is the oldest cryptocurrency, it remains the most valuable, with a market capitalization of nearly $ 800 billion. This implies a high demand, which is particularly remarkable in view of its limited supply. Specifically, Bitcoin’s source code imposes a hard cap of 21 million coins, which means it is a finite asset. And basic economics tell us that when demand exceeds supply, the price of an asset goes up.

Despite the recent market crash, I don’t think the current headwinds will dampen long-term demand for Bitcoin. In fact, there is a catalyst at work that could significantly boost demand in the years to come.

Institutional adoption

A recent Fidelity study indicates that 52% of institutional investors own digital assets and, unsurprisingly, Bitcoin is the most popular digital asset among these large fund managers. More importantly, the study suggested that 71% of institutional investors are considering diversifying into digital assets. In other words, they are getting more and more bullish on cryptocurrency.

Another report, that of Nickel Digital Asset Management, states that 62% of institutional investors with no current exposure will buy cryptocurrency next year, and 82% of institutional investors plan to increase their exposure to digital assets here. 2023. Either way, this Rising demand for digital assets is expected to be a tailwind for Bitcoin, pushing its price up over time.

As a final thought, Ark Invest CEO Cathie Wood believes institutions will end up investing 5% of their money in cryptocurrencies – a significant number as institutional investors now have over 100,000 billion. dollars in assets under management. To that end, Wood estimates that the price of Bitcoin will reach $ 500,000 by 2026, which implies a gain of more than 1000% from its current price. That is why now seems to be the right time to buy this cryptocurrency.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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