After the market crash in early August, even seasoned crypto investors are starting to have doubts about the cryptocurrency market. And that’s perfectly understandable.
Most major cryptocurrencies (ranked by market cap) are still in the red over the past 30 days, and few of them show signs of recovery in the near future.
But there is one you should consider buying in August, and that is Bitcoin (CRYPTO: BTC)After briefly dipping below $50,000 this month, bitcoin has since stabilized around $60,000 and could be poised for a major breakout this fall. There are reasons to be skeptical, of course, but here’s why I’d invest $1,000 in bitcoin this month.
The return of Bitcoin’s famous volatility
It’s hard to believe, but just two years ago, cryptocurrency traders were talking about how boring Bitcoin had become. Instead of its price fluctuating wildly like it used to, it seemed to be locked into a relatively narrow band of fluctuations. The huge one-day price swings seemed to be over. In short, the digital currency was starting to lose some of its famous volatility.
But the heartbreaking events of early August could be a sign that the cryptocurrency’s famous volatility is about to return. Consider that its price has already fluctuated this month in ways no one could have predicted. Yes, it dropped nearly 30% during the cryptocurrency market selloff, but it’s also recovered nearly 20%, all in just one week.
There are two ways to look at Bitcoin’s volatility. If you’re a traditional stock investor, it’s easy to see how volatility could be a deal-breaker. Who wants to invest in an asset that could lose 20% of its value overnight?
But if you’re a cryptocurrency investor, it’s this very volatility that presents the opportunity for massive price gains. If Bitcoin goes to $1 million, as some big investors believe, it won’t get there by making 10% annual returns. It requires massive, one-off price spikes. For this reason, it’s possible to view cryptocurrency volatility as a feature, not a bug.
Bitcoin Spot ETFs
Another big factor in its favor is the remarkable resilience (at least, so far) of the new Bitcoin spot ETFs. In response to the market turbulence of August, they have held up much better than anyone would have expected. Many expected significant outflows following the drop in the price of the digital currency, but that simply hasn’t been the case. In fact, a week after the worst cryptocurrency selloff in two years, net inflows into Bitcoin spot ETFs were still positive.
Granted, one week is an extremely small statistical sample, but it should give investors reason to be optimistic. Retail and institutional investors are not panicking, but are instead choosing to buy bitcoin on the dip. For them, a 20% drop in price is an opportunity to buy bitcoin at a 20% discount.
Bitcoin Seasonality
Finally, its historical seasonality must be taken into account. Just days before the cryptocurrency market sell-off, Coinbase Global (NASDAQ: COIN) published a research note warning of Bitcoin’s tendency to perform poorly in August. Over the five-year period leading up to this month, its price declined by an average of 2.8% in August.
At the same time, Bitcoin tends to see much less trading activity during that particular month, which means less liquidity in the market as a whole. For example, last year, trading volume was down 19% in August compared to June. As Coinbase warned, the combination of lower prices and lower liquidity could pave the way for unexpected volatility. And that’s exactly what happened.
How to Invest $1,000 in Bitcoin
Based on the above, I am convinced that Bitcoin is the ultimate cryptocurrency to buy at $1,000 right now. The return of its historical volatility could pave the way for a major breakout, while the resilience of spot ETFs means there is a solid floor in place in case of unexpected selling pressure. As a bonus, we could see a rebound based on crypto seasonality.
The only question left is: how do you invest that $1,000 in Bitcoin? The obvious choice is to put the money into the new spot ETFs. But you can just as easily invest that money directly into Bitcoin through a cryptocurrency exchange like Coinbase, or through a trading platform like Robinhood Markets (NASDAQ: HOOD).
As long as you’re willing to accept the inevitable risk and volatility, investing in Bitcoin could turn out to be one of the best decisions you make all summer.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.
The Ultimate Cryptocurrency to Buy for $1,000 in August was originally published by The Motley Fool
