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Thinking of buying Bitcoin after recent declines? Here’s what you need to know

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After spending much of the year hovering around the $6,000 level, the price of Bitcoin has plunged over the past few weeks and is now trading at 13-month lows.

Following these declines, November has become the second worst month of 2018 for the price with the value of the cryptocurrency falling by 26% at the time of writing. The worst month this year was March when it fell 32% in total.

If this trend continues, it is on track to record its first negative year of performance since 2011 — a sharp reversal from the gain of 53.8% for 2017.

Time to buy? 

Bitcoin’s value peaked in December 2017 when the value of the cryptocurrency hit an all-time high of $19,511. But ever since it reached this peak, investors have been slowly abandoning it, and its price has dwindled. After November’s poor performance, the asset has lost a staggering 78% of its value since hitting its all-time high.

If you think the decline could be an excellent opportunity to buy Bitcoin, I think it’s worth considering that we don’t know how much further it could fall before buyers return. As I have written before, one of the big problems with it is the fact that it has no underlying fundamental value. It is only worth as much as someone else is willing to pay for it. If there is no one out there who is willing to pay $15,000, it’s not worth $15,000.

Finding a value

How much could each Bitcoin be worth? It is difficult to tell. Some supporters of the cryptocurrency and analysts have tried to put together various models to come up with an underlying intrinsic value based on the number of transactions being carried out and interest from investors. However, none of these models has proven themselves to be an accurate gauge of value. 

Despite all the money, time and effort that has gone into trying to get Bitcoin into the mainstream over the past five years, it is still widely viewed as nothing more than a speculative token.

Speculative token 

The very fact that it has lost two-thirds of its value over the past 12 months supports the argument that this is nothing more than a speculative instrument and not an investment. 

Previously, I have said that after a bumpy start to the year, the fact that the Bitcoin price stabilised in the first half of the year was a positive development. Considering the renewed volatility of the past 30 days, I no longer believe this to be the case.

So overall, while Bitcoin might look cheaper today than it did at the beginning of 2018, it is important to remember that just because an asset seems cheap compared to its historic price, it does not mean it offers value. I think in this case, Bitcoin’s falling value only shows that the cryptocurrency’s biggest supporters are giving up any hope of it breaking into the mainstream. Further declines could be on the cards as a result.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.