Crypto Crash: Is Bitcoin a Buy After Its 40% Slump?

According to CoinGecko, there are more than 17,600 different cryptocurrencies in circulation, with a combined value of $2.4 trillion. The world's largest cryptocurrency is Bitcoin (CRYPTO: BTC), and it accounts for a whopping $1.5 trillion of that.

Crypto markets are currently in the throes of a sharp sell-off, which has sent Bitcoin plummeting by more than 40% from last October's all-time high. Investors are trimming their exposure to highly speculative assets amid rising political and economic upheaval, which could lead to further downside in the crypto market.

However, one of the world's biggest bulls isn't flinching. Michael Saylor just bought another $204 million worth of Bitcoin through his treasury company, Strategy (NASDAQ: MSTR), which now owns roughly 3.6% of all supply outstanding. Should investors also buy the dip, or is more pain on the way?

`Image source: Getty Images.

Bitcoin failed a key test last year

People buy Bitcoin for many different reasons. Some are holding out hope it will become a widely used currency, despite a stark lack of adoption so far. Others, like Saylor, believe it will become the reserve currency for tokenized assets, transforming the global financial system in the process. A growing number of investors also think Bitcoin is a legitimate store of value, to the point that it's sometime referred to as a digital version of gold.

Bitcoin had an opportunity to prove its worth as a store of value last year. The U.S. government ran a $1.8 trillion budget deficit in fiscal 2025 (ended Sept. 30), which catapulted the national debt to a record $38.5 trillion and stoked fears of a sharp increase in the money supply. The Trump administration also injected turmoil into the global economy with its erratic use of tariffs. This confluence of issues drove a whopping 64% surge in the price of actual gold for the year.

However, investors were selling Bitcoin at the very same time, and it wound up closing 2025 in the red. In my view, this called the cryptocurrency's status as a store of value into serious question, because when investors were looking for a safe asset for their money, they abandoned it and chose gold instead.

Bitcoin Price data by YCharts

History says Bitcoin will recover, but buy with caution

Despite its recent decline of more than 40%, Bitcoin has still outperformed every major asset class during the last decade by a country mile:

Bitcoin Price data by YCharts

Investors who bought any Bitcoin dip since it was created in 2009 have made money, and it's impossible to say with certainty that this time will be different. However, during two previous major sell-offs between 2017 and 2018 and between 2021 and 2022, Bitcoin lost more than 70% of its peak value. This suggests the recent decline might have further to go before a bottom is finally reached.

In my opinion, there has never been more skepticism surrounding Bitcoin's future. I mentioned earlier that its status as a store of value was under threat, but some of the biggest believers in its ability to become a widely accepted payment mechanism are also wavering.

Last November, Ark Investment Management's founder, Cathie Wood, reduced her 2030 Bitcoin price target to $1.2 million from $1.5 million, because she now thinks stablecoins are better candidates to displace fiat money and traditional payment systems. They offer practically zero volatility, extremely low costs, and instant transfers, which is why adoption is soaring.

According to Ark's research, trailing-30-day transaction volume for stablecoins hit $3.5 trillion in December, more than twice as much as the combined volume processed by Visa and PayPal. According to a survey by The Motley Fool, 50% of U.S. consumers -- and 71% of Generation Z, specifically -- say they are willing to use stablecoins, so Ark's findings come as no surprise.

Therefore, although history suggests Bitcoin will eventually bounce back, there is no denying some of the biggest arguments for owning it have been weakened. That's why I'm not planning to buy the recent dip, but investors who do should keep their position small to minimize risk.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, PayPal, and Visa. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short March 2026 $65 calls on PayPal. The Motley Fool has a disclosure policy.