Bitcoin Just Dropped 45%: Here's What I'd Do With $500 Right Now

These are nervous times for Bitcoin (CRYPTO: BTC) investors. The world's most popular cryptocurrency is down a staggering 45% from its all-time high of $126,000 just a few months ago. It's now trading for just $70,000, and some think it might fall all the way to $50,000.

It's a stunning, epic collapse. But it's also nothing new for longtime Bitcoin investors. After every collapse, Bitcoin goes on to set a new all-time high. And that's what I think will happen this time as well. With that in mind, here are two ways to put $500 to work right now.

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Dollar-cost average into Bitcoin

It's important to buy Bitcoin while it's trading at these deep discount prices. But I would be hesitant about putting all $500 to work at one time. Instead, I'd spread it out over a period of 10 months, investing $50 each month.

This is known as a dollar-cost averaging (DCA) strategy, and it can be an extremely effective way to benefit from falling asset prices. The lower that Bitcoin goes, the more that you can buy with your $50 each month. And conversely, the higher that Bitcoin goes, the less that you can buy with your $50 each month.

The strategy is effective because it takes all the emotion and drama out of investing in Bitcoin. You won't be watching the daily price chart for Bitcoin, and you won't get caught up in the wild volatility swings.

Invest $500 up front and hedge your position

If you decide to invest all $500 up front, it's worth exploring how you can hedge your new Bitcoin position. That's because Bitcoin is simply too volatile right now to trust completely.

The good news is that you don't need to be a professional hedge fund manager to do this, and you don't need any advanced knowledge of financial derivatives. It's possible to do this by investing in prediction market event contracts.

For example, on the Robinhood Markets (NASDAQ: HOOD) trading platform, it's now possible to purchase Bitcoin event contracts based on the following question: "How low will Bitcoin get in 2026?" These event contracts are available at a number of price points, including $60,000, $50,000, and $40,000.

If Bitcoin falls from its current price of $70,000 to any of these price points in 2026, you make money. If Bitcoin falls only slightly or increases in value, the event contracts expire worthless. Obviously, you want Bitcoin to increase in value, but you won't be absolutely crushed if it does not.

Let's say Bitcoin falls from $70,000 to $50,000. You would lose 28.5% of your initial $500 investment, or $143. But if you own any event contracts based on Bitcoin hitting a price of $50,000, you would at least make back some of your loss. It's a very basic hedge, but it would at least give you some peace of mind.

What is the optimal strategy?

With the price of Bitcoin so unpredictable right now, the safest strategy is to embrace a dollar-cost averaging strategy. If history is any guide, Bitcoin will soon rebound, and you'll be richly rewarded for your patience as a crypto investor.

Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.