Bitcoin is famously volatile, so how do you know if now is a good time to buy it? We take a practical approach and review three investing guidelines, and then apply them to Bitcoin for an answer.
1. In General, Invest for the Long-Term
All investments tend to be volatile in the short-term, not just Bitcoin. Stock prices commonly drop 10% to 20% or more in the short term, which isn’t the case for long-term investments. According to Investopedia, “individuals have rarely lost money investing in the S&P 500 for a 20-year time period.” This also includes the Great Depression and the tech bubble bursting. All this is to say, if you’re looking for more assurance of a positive investment, a long-term investment is far surer than a short-term one, no matter what you invest in.
Plus, Bitcoin is generally viewed as a long-term investment. This coupled with our world growing more digital every day spells good news for long-term cryptocurrency investments.
(If you’re only interested in Bitcoin in the short-term, check out our article on flipping Bitcoin.)
2. “Buy Low, Sell High” is a Myth.
At the risk of explaining the obvious, the “buy low, sell high” adage touts purchasing stocks at low prices and selling at high ones. Sounds simple, right?
It isn’t. There are many reasons why, but in particular, the market is fueled by psychology and emotions far more than we realize. And good luck (and good gracious) if you’re keenly attuned to all that.
As an example, “in the last 20 years, 70% of the best days in the market happened within 14 days of the worst ones,” according to Kristin McKenna, managing director at Boston, Mass.-based Darrow Wealth Management. Are you as surprised to hear that as we are? Human psychology isn’t always straightforward….
So while “buy low and sell high” may be sound enough advice, how useful is advice if it’s nearly impossible to follow?
All this is to say, cryptocurrency prices go up and down–you know that. Instead of trying to time your purchase perfectly, simply purchase it if you feel it will continue to go up. Plus, remember point 1. Time invested is your best friend, so every day you wait for Bitcoin to drop in order to invest is a day of potentially missed growth.
3. Diversify your Investments.
Here’s advice you can, and should, take. The goal of diversifying assets is to limit risk and increase your odds for success. This avoids putting your eggs in one basket, which makes you vulnerable to stray kicks that leave you with a pile of broken eggs. Instead, you place eggs in various baskets, so when that clumsy egg-kicking person kicks over one basket, you can still make a tasty omelet from the eggs in the others.
Eggs aside, if you’ve already invested in the stock market, investing in Bitcoin is an excellent choice to diversify your assets in a meaningful, truly diverse way.
Should I Buy Bitcoin Now?
Any time can be a good time to invest–in cryptocurrency or elsewhere. In general, don’t hold onto cash if you can afford to invest it! The value of cash decreases each year with inflation, while a good investment can far outpace inflation and make your cash more valuable in the future.
Bitcoin in particular has had an average return of about 200% per year for the last 10 years. Despite the vicious ups and downs, this is significantly greater than even the S&P 500’s average yearly returns. So if you’re looking long term, those numbers should provide incentive enough to tell you that now is a good time to buy some Bitcoin. If you have spare cash lying around, investing that can be a great way to get started with Bitcoin! Learn more about converting your cash into Bitcoin here.