Is the Bitcoin rally finally coming to an end? Is the cryptocurrency no longer worth “HODLin,” or mining? Should you sell right away before the price drops even further? These are the questions crypto investors start asking themselves as soon as Bitcoin starts to dip. But occasional dips in such a volatile asset should not be a concern, especially for long-term investors.
But the decline we see now is more than just investors trying to cash in their gains. The shift in the investor sentiment is driven by a few other factors, which might make this decline different from the previous ones. If you invested in Bitcoin and the asset has disappointed you, there are a few things you need to understand, in addition to finding other cryptocurrencies to invest in.
Why is Bitcoin declining in value?
Most investors are still hopeful that Bitcoin will repeat its February and recover to new heights. The stock has already fallen 18.7% in the last few days. If it keeps slipping down, the crypto might see the sharpest decline this year yet. But many investors are bullish on Bitcoin for the long term and consider this a minor correction.
One reason for this decline might be the income tax changes that U.S. President Joe Biden is proposing, which will take a significantly bigger piece (almost double of what it is right now) of the pie for Uncle Sam from the capital gains Bitcoin investors realize by selling the crypto. Coinbase listing is also one of the reasons why Bitcoin might be slipping.
Although Bitcoin is the forerunner and the most famous cryptocurrency right now, it’s not the end of the line. You might still gain exposure to crypto assets using two cryptocurrencies that might be better alternatives to Bitcoin right now.
One of the two cryptocurrencies is Litecoin, which is quite similar to Bitcoin (it’s a spinoff). It’s a relatively more affordable currency and is currently trading for $277.7 apiece. During the last 12 months, Litecoin has tracked the value of Bitcoin quite diligently, but that hasn’t always been the case. The timeline for Bitcoin’s and Litecoin’s previous peak and the crash didn’t overlap, so it might be a good asset to diversify your cryptocurrency portfolio.
Ethereum is another great alternative, and if we are to believe Mark Cuban, the billionaire investor, Ethereum will “dwarf” Bitcoin in the future. He identified smart contracts and Ethereum as the extension for this supposed future growth. Even right now, when Bitcoin is slipping, Ethereum has grown over 43% in the last 30 days.
If you don’t want to own the currency directly, you can gain direct exposure through the Ether Fund (TSX:QETH.UN), that is, the Ethereum-based fund created by 3iQ Digital Asset Management. You can buy the fund hedged against USD or CAD (both have separate tickers). About 99.38% of the fund is made up of Ethereum, and it has a Net Asset Value (NAV) of about $616 million.
The main benefit of buying into this fund instead of the crypto itself is that it can be placed in tax-deferred accounts so you can get the relevant tax advantages.
Bitcoin might be going down for a long-time, or it might simply be a slight dip, and the crypto will start rising again in no time. In any case, buying now might not be a great idea. If the crypto steadily declines and goes down to new depths, you might have a chance of buying it at a significant discount. It would still be a good idea to mix things up with other cryptocurrencies.
Speaking of Bitcoin’s relatively more profitable alternatives...
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Fool contributor Adam Othman has no position in any of the stocks mentioned.