Bitcoin (CRYPTO: BTC) is often grouped together with risk assets like growth stocks in the minds of careful investors. Under that logic, if there’s a bear market for stocks, and the sentiment causes major players to flip to being risk-off from risk-on, Bitcoin is more likely to tumble than hold steady, just like other assets that are purchased for their upside potential rather than for their sturdiness.
So does that mean you shouldn’t buy Bitcoin if there’s trouble in the stock market? Far from it. In fact, you might want to buy even more, so let’s look into why.
To start, let’s take a look at how Bitcoin performed in the most recent bear market for stocks, in 2022:
As you can see, Bitcoin lost a lot of its value throughout 2022, and then slowly started to grind up again in the following year. But for those who bought it at one of the peak times in 2021, during the bull market, it took roughly three years to break even. This suggests that it’s probably riskier to buy the coin when prices are elevated than when it’s struggling, which suggests that bear markets are better times to buy.
So, knowing this, why doesn’t everyone do it?
In short, because it’s scary to invest in a cryptocurrency that’s volatile in an environment where asset prices are generally trending downward. Many people, including legendary investors like Warren Buffett, are fixated on the inaccurate idea that Bitcoin’s value “isn’t based on anything concrete” or that there’s no mechanism by which its price can rise absent a speculative buying frenzy created by loose monetary policy. When prices have recently fallen a lot, it’s thus very easy for skeptics to look at the short-term movement and conclude that the coin’s value is headed toward zero rather than just temporarily falling.
But let’s put that view to the test. At the lowest points of its price in 2015, 2019, and 2023, Bitcoin had fallen roughly 80% from its previous all-time high. It went on to breach new all-time highs within a few years each of those times. That wouldn’t be happening if there weren’t quite a few buyers willing to invest in it even after its price declined by so much.
Focusing on the short term is not an activity that pays off with Bitcoin. Focusing on the long term is what makes its investors richer.
It’s important to recognize that Bitcoin is not destined to rise in value over any specific period. That means if you buy a lot of it during a bear market, you might be holding onto an underwater investment for a very long time, perhaps even a few years as the prior data indicate. If you need the money between now and that undefined period in the future, you’ll have to sell at a loss, which could be brutal.
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