How To Decide On The Right Time To Buy Bitcoin?

For many new investors in Bitcoin it might be unclear when it’s a good time to buy Bitcoin. In this post, we will point to some useful indicators and frameworks to make up your mind. 

For a long time, people buy into Bitcoin to get rich quickly, hoping to buy low and sell at the peak – potentially never to return again. This may be perfectly natural in the early stages of an asset’s development, but as the asset matures crypto traders also need to approach the market differently.

If you are a scalp trader, or you focus more on futures trading, it is better to rely on technical analysis. For these types of traders timeframes are short and when trading with high leverage, other more immediate factors take precedence over long-term structural developments in one’s analysis. 

However, if you’re looking at Bitcoin for the longer term, then you might need to look at other factors. 

On-chain sentiment 

IntoTheBlock provides a useful dashboard for a range of cryptocurrencies, including Bitcoin. The dashboard provides a useful overview of various parameters such as a profit-to-loss ratio, transaction demographics and exchange in- and outflows. The meter tells us the market is bearish, but does that mean it’s a bad time to buy? 

In a previous article, we explained about market cycles. If we want to buy low, then chances are, we would do so when circumstances are looking rather bleak and bearish. Of course, the risk is always that the price continues to drop further, but this is just to convey the basic principle that a correction or even temporary change in market structure does not mean Bitcoin will plummet forever! 

Grayscale Holdings

Grayscale is a large crypto fund that enables institutional investors to gain exposure to Bitcoin via a trust fund, without having to actually own Bitcoin. Since Grayscale holds around $20billion USD in Bitcoin, their activities in the market are significant. 

As we can see from this graph, Grayscale’s Bitcoin product usually trades at a premium, indicating a bullish view on Bitcoin. 

On the 6th of January, during the attack on The US Capitol and Bitcoin’s rally to its latest all-time high, Bitcoin’s price shot past Grayscale’s price and, as we’ve seen over the past two weeks, subsequently experienced a sharp correction. At present, Grayscale trades at a premium once again. 

Institutional Support 

For a long time, Bitcoin holders sought their inspiration from daring whales, such as the Winklevoss brothers that really pushed the market forward or early adopters like Chamath Palihapitiya who has advocated for Bitcoin for years now. 

While prior to 2018, institutional investors were still asking the question “where are the fundamentals?”, in 2020, the institutions became the fundamentals. Institutional support for Bitcoin may bring legitimacy to the space, but when institutions actually start buying into Bitcoin, they’re buying into the grand narrative that over the long term it is better to hold Bitcoin than fiat currency, not so much as a medium of exchange but as a store of value. 

Indeed, every now and the prospect of “stricter regulation” or “crackdowns” shocks the market, but overall it seems central banks and regulators are more concerned with stablecoins than with Bitcoin, and with the rise of institutional demand for the asset, pressure on financial centers to open up to innovation also increases. 

Following Microstrategy, Harvard University, Square, now it has been reported that BlackRock – the world’s largest asset manager – is adding Bitcoin futures as an eligible investment to two funds. It is the first time the money manager is offering clients exposure to cryptocurrency. 

The Fear and Greed Index

Similar to the fear and greed indexes in the traditional markets, the Crypto Fear and Greed index is a tool that measures two of the primary emotions that influence how much investors are willing to buy crypto like Bitcoin.

On January 22nd, the index sharply dropped to a value of 40, moving market sentiment from “Extreme Greed” to “Fear.” The index dropped to this low for the first time since October 3, 2020, when Bitcoin was trading at around $10,500.

If we look at the graph below, we can see that a similar drop on the index (signaling fear) happened in March 2020, during the stock market crash, and another time in the beginning of September. 

However, fear does not necessarily mean it’s a bad time to buy. In fact, as we can see, a sharp drop in confidence is usually followed by a significant uptake in price. 

Of course, these are just some of the many ways that you can go about assessing the market for Bitcoin and determining when it is a good time to buy.

When trading for the long term you may not need to be as price sensitive as day traders and scalp traders. As it stands, we’ve seen strong support around $28,000, but if such support is breached we may need to test $24,000. On the other hand, we’ve seen strong resistance at $36,500, and so it is also possible that Bitcoin will be trading sideways for a while. 

One common way investors in Bitcoin often go about investing is simply by regularly allocating more capital to Bitcoin. At times, this means buying the dip, and at other moments it may mean buying the top. However, over the long term as your entry price evens out, your exact buy-in point during any one of your many trades into the asset may not matter too much. 

For up to date technical price analyses, visit AAX’s Market Analysis Section

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