Is Now a Good Time to Buy Bitcoin? (Updated 2024)

What gives Bitcoin its value?

Bitcoin was the world's first cryptocurrency, created in January 2009 by the mysterious Satoshi Nakamoto.

Conceived as a virtual alternative to fiat currency, Bitcoin is built atop blockchain technology, which it uses for both validation and security. Blockchain itself is a distributed digital ledger of transactions, operating through a combination of private keys, public keys and network consensus.

The best analogy to explain how this works in practice involves Google Docs. Imagine a document that's shared with a group of collaborators. Everyone has access to the same document, and each collaborator can see the edits other collaborators have made. If anyone makes an edit that the other collaborators don't approve of, they can roll it back.

Going back to Bitcoin, the virtual currency primarily validates transactions through proof of work. Also known as Bitcoin mining, this competitive and incredibly resource-intensive process is the means by which new Bitcoins are generated.

How it works is deceptively simple. Each Bitcoin transaction adds a new "block" to the ledger, identified by a 64-digit encrypted hexadecimal number known as a hash. Each block uses the block immediately preceding it to generate its hash, creating a ledger that theoretically cannot be tampered with. Bitcoin miners collectively attempt to guess the encrypted hex code for each new block — whoever correctly identifies the hash then validates the transaction and receives a small amount of Bitcoins as a reward.

From an investment perspective, Bitcoin toes the line between being a medium of exchange and a speculative digital asset. It also lacks any central governing body to regulate its distribution. As one might expect, these factors together make Bitcoin quite volatile, and therefore somewhat risky as an investment target.

As for the source of this volatility, Bitcoin's value is primarily influenced by five factors.

1. Supply and demand

It's widely known that no more than 21 million Bitcoins can be produced, and that's unlikely to happen before 2140.

Only a certain number of Bitcoins are released each year, and this rate is reduced every four years by halving the reward for Bitcoin mining. The last of these "halvings" occurred in April 2024 and the next one is due sometime in 2028. When it happens, there may be a significant increase in Bitcoin demand, largely driven by media coverage and investor interest.

Bitcoin demand is also strengthening in countries experiencing currency devaluation and high inflation.

It would be remiss not to mention that Bitcoin represents an ideal mechanism for supporting illicit activities — meaning that increasing cybercrime could itself be a demand driver.

2. Production costs

It's said that Bitcoin benefits from minimal production costs. This isn't exactly true, however. Solving even a single hash requires immense processing power, and it's believed that crypto mining collectively uses more electricity than some small countries. It's also believed that miners were largely responsible for the chip shortage experienced throughout the pandemic due to buying and burning out vast quantities of graphics cards.

These costs together have only a minimal influence on Bitcoin's overall value. The complexity of Bitcoin's hashing algorithms and the fact that they can vary wildly in complexity are far more impactful.

3. Competition

Bitcoin's cryptocurrency market share has sharply declined over the years. In 2017, it maintained a market share of over 80 percent. Bitcoin's current market share is just over 56 percent.

Despite that fall, Bitcoin remains the dominant force in the cryptocurrency market and is the marker by which many other cryptocurrencies determine their value. However, there is no guarantee that this will always remain the case. There are now scores of Bitcoin alternatives, known collectively as altcoins.

The most significant of these is Ethereum. Currently accounting for roughly 14 percent of the crypto market, Ethereum has maintained its position as the second largest cryptocurrency. Some experts have suggested that Ethereum may even overtake Bitcoin, but others don't see that as a possibility in the near future.

4. Regulations

Bitcoin may itself be unregulated, but it is not immune to the effects of government legislation. For instance, China's 2021 ban of the cryptocurrency caused a sharp price drop, though it quickly rallied in the following months. The European Union has also attempted to ban Bitcoin in the past, and Nic Carter, a partner at Castle Venture, accused the US of trying to do the same in February 2023. A ban in either region could be devastating for Bitcoin's overall value.

However, the US made progress in establishing crypto legislation in 2024 when the House passed the Financial Innovation and Technology for the 21st Century (FIT21) Act in a bipartisan 279 to 136 vote on May 22.

5. Public interest and media coverage

As with any speculative commodity, Bitcoin is greatly influenced by the court of public opinion.

Perhaps the best example of this occurred in 2021. At that time, a tweet from Tesla's (NASDAQ:TSLA) Elon Musk caused Bitcoin's price to drop by 30 percent in a single day. This also wiped about US$365 billion off the cryptocurrency market.

A more recent example occurred on January 9, leading up to the deadline for eight spot Bitcoin ETFs by the US Securities and Exchange Commission (SEC). In a since-deleted post on X, formerly known as Twitter, a hacker falsely stated that the SEC had approved all eight pending Bitcoin ETFs. This caused the price of Bitcoin to spike to US$48,000, but it quickly dropped back down to around US$46,000 after the SEC confirmed it was a hack, leading some analysts to consider it a "sell-the-news" event.

Is it a good time to buy Bitcoin?

Bitcoin is notoriously volatile, making it difficult to judge where the crypto is going next, but taking a look at recent drivers and past trends can help investors make that decision.

Recent geopolitical and economic events alongside a substantial payout to creditors of the failed Bitcoin exchange Mt. Gox have fueled market uncertainty, with intermittent periods of high and low price volatility serving as a clear signal of shifting investor sentiment. Amidst market turmoil triggered by weak jobs data and a Yen carry trade unwinding at the beginning of August, Bitcoin briefly dropped below US$50,000.

Despite signs of recovery, the impact is still being felt in the crypto market, and Bitcoin has lost 5.6 percent of its value in the last 30 days. In a research note, Ryan Lee, chief analyst at Bitget Research, warned that bullish price action the week ending on August 9 “cannot support a full market reversal or recovery.”

“Crypto prices will likely be rangebound with a bias to the weak side,” Augustine Fan, head of insights at SOFA.org, told CoinDesk on August 11. At the same time, crypto miners have been facing declining hash prices since the halving, while the hash rate reached an all-time high, contributing to the considerable volatility observed in August.

Co-founder of Blockspace Media Charlie Spears told The Defiant on August 12 that Bitcoin’s tumble to US$50,000 following the August 5 rout combined with the added mining difficulty “felt like a bottom.”

Glassnode data explained that sellers have been outperforming buyers since March 14, when Bitcoin reached its highest valuation of US$73,737.94. The cumulative volume delta, a metric that assesses the balance between buying and selling pressure, indicated a negative balance, suggesting more selling than buying activity.

Furthermore, Bitcoin fell below the 50-day simple moving average (SMA) on August 3 after the July employment report sparked fears of an impending recession and triggered a sell-off in riskier assets. On August 11, Bitcoin’s price crossed below the 200-day SMA, forming a “death cross,” an analysis pattern that suggests a decline may be the start of a longer-term downward trend. Similar patterns were observed during the FTX crash and in September 2023, and both were followed by periods of price discovery.

Bitcoin’s price didn’t move above the 50-day SMA until August 23, when it jumped 5 percent to US$64,183 after the Fed gave the green light to begin lowering interest rates in September. Historically, favorable markets have tended to influence crypto prices positively, and investors were hopeful that the news would provide increased buying pressure, but so far that hasn’t been the case.

What could it mean for Bitcoin if prices continue to struggle? Let’s compare Bitcoin’s crash in late 2022, when it fell to US$17,000, to its recent decline. Per NASDAQ, Bitcoin's turbulence can be traced back to a few factors.

First and foremost were the harsh economic conditions of 2022. To combat supply shortages and inflation, the US Federal Reserve hiked interest rates aggressively. The war in Ukraine introduced even further uncertainty. In response, most investors reined in discretionary spending and became less willing to speculate on risky or volatile assets.

The catastrophic failure of crypto exchange FTX also left a sour taste in the mouths of investors to the tune of a nearly US$1 billion loss. Already wary of Bitcoin, many took FTX's failure as a sign that their initial instincts were correct.

That said, Bitcoin didn't actually take that long to recover from its post-FTX crash — by mid-January 2023, it had already returned to its pre-crash price. In the time since, the cryptocurrency experienced one of its most promising periods since its inception — including a new high in March 2024. despite its price becoming stuck in August with little change observed heading into September.

However, it is important to remember that there's no such thing as a guaranteed investment, especially when it comes to cryptocurrencies. On the one hand, there's virtually no chance that Bitcoin will experience a crash to zero like Terra Luna. On the other hand, we also cannot take for granted that its value will continue to climb.

How to smartly invest in Bitcoin?

Bitcoin seems to be recovering from recent upheaval. After climbing to nearly US$70,000 in late July, the Bitcoin price fell rapidly in early August to below US$50,000 on August 5. By August 8, it had already moved back above the US$59,000 mark, and moved close to US$65,000 in late August before settling just under the US$60,000 mark as of mid-September.

Global markets remain apprehensive ahead of the US Federal Reserve’s September meeting, when the first rate cut is expected to be initiated. Taking current market conditions into account, now could be a good time to invest in Bitcoin, so long as you remain cognizant of the risks.

But if you opt to jump into the market, what comes next?

What is the process for buying Bitcoin?

The good news is that investing in Bitcoin is actually quite simple. If you're purchasing through a stockbroker, it's a similar process to buying shares of a company. Otherwise, you may need to gather your personal information and bank account details. It's recommended to secure your network with a VPN prior to performing any Bitcoin transactions.

The first step in purchasing Bitcoin is to join an exchange. Coinbase Global (NASDAQ:COIN) is one of the most popular, but there's also Kraken and Bybit. If you're an advanced trader outside the US, you might consider Bitfinex.

Once you've chosen an exchange, you'll need a crypto wallet. Many first-time investors choose a software-based or "hot" wallet either maintained by their chosen crypto exchange or operated by a service provider. While simpler to set up and more convenient overall, hot wallets tend to be less secure as they can be compromised by data breaches.

Another option is a "cold" wallet — a specialized piece of hardware specifically designed to store cryptocurrency. It's basically a purpose-built flash drive. If you plan to invest large amounts in crypto, a cold wallet is the better option.

Once you've acquired and configured your wallet, you may choose to connect either the wallet or your crypto exchange account to your bank account. This is not strictly necessary, and some seasoned investors don't bother to do this.

Finally, with your wallet fully configured and your exchange account set up, it's time to place your order.

Best practices for investing in Bitcoin

The most important thing to remember about Bitcoin is that it is a high-risk asset. Never invest money that you aren't willing to lose. Treat Bitcoin as a means of slowly growing your existing wealth rather than an all-or-nothing gamble.

As with other investments, it's important to hedge your portfolio. Alongside Bitcoin, you may want to consider investing in other cryptocurrencies like Ethereum, or perhaps an altcoin. You may also want to explore other blockchain-based investments, given that even the most stable cryptocurrencies tend to be fairly volatile.

It's also key to ignore the hype surrounding cryptocurrencies. Recall how many people whipped themselves into a frenzy over non-fungible tokens in 2022. More than 95 percent of the NFTs created during that time are now worthless.

Make decisions based on your own market research and advice from trusted — and more importantly, certified — professionals. If you're putting up investment capital based on an influencer's tweets, you are playing with fire.

You should also start small. A good rule of thumb is not to dedicate more than 10 percent of your overall capital to cryptocurrency. Even that number could be high — again, it's all about moderation.

Make sure to prioritize cybersecurity as well. Cryptocurrencies are an immensely popular target for cybercriminals. In addition to maintaining a cold wallet, make sure you practice proper security hygiene. That means using a VPN and a password manager while also exercising mindfulness in how you browse the web and what you download.

Finally, make an effort to understand what cryptocurrencies are and how they work. One of the reasons Sam Bankman-Fried was able to run FTX as long as he did was because many of his investors didn't fully understand what they were putting their money into. Don't let yourself be fooled by buzzwords or lofty promises about Web3 and the metaverse.

Do your research into the technology behind it all. That way, you'll be far better equipped to recognize when something is a sound investment versus a bottomless money pit.

When should you buy and sell Bitcoin?

Generally speaking, Bitcoin's price action is sentiment driven. To determine if it is a good time to invest in Bitcoin, you must pay attention to the market and listen to the experts. Given how dramatically Bitcoin's value tends to fluctuate, traditional advice for other assets does not always apply.

What is indirect crypto investing?

Given Bitcoin's volatility, it's understandable that you might be leery of making a direct investment. The good news is that you don't have to. You can indirectly invest into the crypto space through mutual funds, stocks and ETFs.

ETFs are a popular and flexible portfolio choice that allows investors to benefit from a sector’s performance without the need to directly own individual stocks or assets. They are an especially appealing option in the cryptocurrency market as the technical aspects of purchasing and holding these coins can be confusing and intimidating for the less technologically inclined.

Bitcoin futures ETFs provide exposure to the cryptocurrency's price moves using Bitcoin futures contracts, which stipulate that two parties will exchange a specific amount of Bitcoins for a particular price on a predetermined date.

Conversely, spot Bitcoin ETFs aim to track the price of Bitcoin, and they do so by holding the asset. Spot Bitcoin ETFs have been offered to Canadians since 2021; for more details, check out 11 Canadian Cryptocurrency ETFs and 5 Biggest Blockchain ETFs. Spot Bitcoin ETFs began trading in the US on January 11, 2024.

Do a bit of research and touch base with your stockbroker or financial advisor before you go in this direction.

What is a realistic Bitcoin price prediction for 2025?

Reality and price predictions rarely match up as forecasters have no way of predicting major events like Russia's war with Ukraine or the COVID-19 pandemic. On top of that, the further away the time period, the less realistic the prediction will be.

As such, there is a massive range for 2025 Bitcoin price forecasts. As of April 2024, forecasts for where the Bitcoin price might land in 2025 range from US$74,456.13 to US$270,929.12. We'll have to wait a a couple of years to see which are correct.