It's been a rough few weeks for ASX investors. It was only back on 21 October that the S&P/ASX 200 Index (ASX: XJO) was at its latest (and last) all-time record high of 9,115.2 points. Since then, the Australian share market has tumbled by around 7%. But those losses pale in comparison to what Bitcoin (CRYPTO: BTC) owners have endured.
Bitcoin last peaked a little earlier than the ASX 200, climbing to a new record of just over US$126,000 in early October. Today, that same coin is worth just US$90,630 at the time of writing. That's a loss of almost 30% since that high just a few weeks ago.
Evidently, there has been a lot of selling happening here. With the cryptocurrency still up more than 443% at today's prices over the past three years, many investors probably would have been happy to take their money off the table when it looked as though the recent run was coming to an end.
But beyond pointing this out, it can be difficult to know, as it has always been, why the price of this volatile digital asset is swinging so hard.
Many investors who don't own Bitcoin, or perhaps already own it and are thinking about buying more, might be wondering whether it is time to jump back in right now.
That's an admirable mindset to have. After all, Warren Buffett always said to "be greedy when others are fearful". But that advice, as I'm sure Buffett would be at pains to tell us, applies only to high-quality stocks.
Bitcoin is a whole different ballgame.
When is it a good time to buy Bitcoin?
Bitcoin advocates have faith in these digital tokens for a variety of reasons. Some might think of it as the future of money, free from the manipulation of government-run central banks. Others might like its potential as a truly borderless, global currency that can be exchanged for goods and services all over the world.
However, I think Bitcoin's use in these contexts has yet to be fully proven. In my mind, there is only one truly desirable attribute to this cryptocurrency. That would be its finite supply.
As has been well documented, Bitcoin is built on the principle that it has a capped supply of 21 million coins. This gives the cryptocurrency some utility as a store of value.
That is a rare feature in our digital age. It is also why some investors describe Bitcoin as 'digital gold', given the precious metal's own rarity. As the supply of new Bitcoins continues to dwindle, I think it is likely that the cryptocurrency will realise its potential as an effective store of value. It is for this reason alone that I own some as a small proportion of my overall investing portfolio.
If you are of this mindset, then the current pullback might indeed represent a good opportunity to add to your stockpile. We know that supply will continue to tighten in the years ahead, and that could well be good news for its long-term price.
