After the Worst Crypto Flash Crash of All Time, Is Bitcoin Still a Buy?

Flash crashes are like pop quizzes for investors in the sense that they're uncomfortable, revealing, and an opportunity to succeed for those who are prepared. In that vein, the crypto market just got one of the roughest surprise exams in its history, with its worst-ever flash crash on Oct. 10. That brought on a hurricane of uncontrolled selling and forced unwinding of leverage that buckled some of the foundations of the crypto-financial system.

Amid the chaos, Bitcoin (CRYPTO: BTC) bent, but did not break, especially not in comparison to many of its peers. Compared to where it was just a few days ago, on Oct. 6, as of Oct. 14 it's still down by 11%. Does this mark the beginning of the end for the king of crypto, or is this coin still worth buying?

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Holders should be grateful for the minimal damage

So what happened in the recent flash crash, exactly?

Between Oct. 10 and Oct. 11, crypto derivatives suffered the largest single-day liquidation on record by dollar value, with more than $19 billion forced out in 24 hours as positions were liquidated by centralized and decentralized exchanges (DEXes) and investor unwound leveraged bets. That cascade took Bitcoin from fresh highs earlier in the week to lows near the mid-$100,000s before rebounding.

The dam broke due to a burst of tariff-related headlines and trade-war rhetoric by President Donald Trump, which in turn prompted global risk aversion to spike, colliding with heavy leverage across the crypto sector. That combination is equivalent to a pool of gasoline near a spark; liquidity evaporated, margin calls hit, and auto-deleveraging by exchanges kicked in to prevent the loss of collateral from the leveraged positions on their platforms.

Altcoins fell harder because their markets are smaller, their liquidity is shallower, and their investor bases are more sensitive to funding squeezes. Many collapsed by 80% or more, and a few actually saw their prices crater to quite near the stone cold bottom of $0.00. Bitcoin, by contrast, benefits from deeper spot and derivatives markets and a growing base of institutional investors who buy its dips through exchange-traded funds (ETFs). Early this month, spot Bitcoin ETFs saw billions in net inflows as prices reached new highs, which is a sign of durable demand that does not vanish because of one ugly trading session -- and that's a big part of the reason its losses were fairly well contained.

Crucially, none of the proximate causes of the flash crash touched Bitcoin's core design, nor was its investment thesis invalidated in any way.

Its supply remains programmatically capped at 21 million, and its halvings will continue to reduce its new issuance on regular intervals, thereby mathematically tightening its supply over time. There is no reason to suspect that mining it got any easier as a result of the crash. Nor will it get any easier in the future, so its supply will continue to grow slower over time.

Here's how to think about the dip

So, should investors buy the dip in Bitcoin after this scare? If your time frame is measured in years, the answer is still yes, with discipline.

It's true that trade war headlines have proven to not be one and done; renewed tariffs or macro shocks could once again pressure liquidity and produce a few aftershocks from the flash crash. But that doesn't really matter in the long term, as your edge as an investor is patience.

Bitcoin's supply will remain tight, and it will get tighter. Institutions continue to accumulate it. And it will still be the bedrock of the entire crypto sector.

Therefore the dip is an opportunity to buy even more Bitcoin than usual, assuming you can tolerate volatility and your investing horizon is long enough to let the supply math and adoption trend compound in your favor.

Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.