The Bitcoin (CRYPTO:BTC) price has tumbled 10% since the start of 2022. Is it a buy?

The cryptocurrency is having a disappointing start to the new year.

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The Bitcoin (CRYPTO: BTC) price has tumbled so far in 2022 following the latest comments from the US Federal Reserve.

Since the beginning of the calendar year, the flagship cryptocurrency has slumped by more than 10%, highlighting its extreme volatility.

At the time of writing, the price of Bitcoin is fetching US$41,760.73. This represents a drop of almost 38% from its all-time high of US$68,789.63 in November.

What’s happened to Bitcoin lately?

Once again, in spectacular fashion, the Bitcoin price has fallen as unfavourable market conditions weigh on investor sentiment.

The release of minutes from the US Federal Reserve’s meeting indicated that interest rates would soon rise. In addition, an end to stimulus packages to counteract the impact of COVID-19 could also provoke distress.

US Treasury Secretary Janet Yellen’s statements late last year on the cryptocurrency didn’t help matters. Those comments were centred around Bitcoin being an extremely inefficient way of conducting transactions, along with its use in illegal activities.

And if that wasn’t enough to put a dent in investor confidence, Tesla boss Elon Musk also gave his input. He noted the price of Bitcoin seemed higher than where it should be trading.

A number of critics are putting the spotlight upon the sheer amount of power required to mine new crypto coins. Miners run souped-up machines and supercomputers to solve complex algorithms and puzzles in order to create Bitcoins.

While there are roughly 19 million Bitcoins currently circulating, just 2 million bitcoins remain to be mined in the future. Bitcoin inventor Satoshi Nakamoto originally capped the total supply to 21 million Bitcoin.

Experts predict that the remaining bitcoins will be mined by 2140.

Is it a buy?

If the price of Bitcoin can pass the psychological barrier of US$50,000, the resistance barrier may turn into a support level. Notably, the cryptocurrency has corrected by a considerable percentage which should be expected with this asset class.

Bitcoin, along with other coins such as Ethereum, Solana, and Cardano, is considered to be high risk/high reward investment.

A sound approach for any investor is the dollar-cost averaging strategy (DCA).

It is a simple strategy that entails investing an amount in the same asset at regular intervals over a period of time.

DCA reduces the impact of market volatility on the overall purchase. It is known as a risk-reduction tool, especially in this current climate.

Tiptoeing in small increments during a market dominated by COVID-19 news may also avoid cryptocurrency slumps.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Bitcoin. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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