Investors in every industry are always wondering the best time to buy. Everyone wants to get the most potential for profit that they can, which means many are trying to time the bottom of the market, which is, as you might expect, difficult. Those wondering when is the best time to buy cryptocurrency are often in an even more difficult situation. This is because the sector is so volatile and can rise or fall within a very short time frame.
The reality of wondering what is the best time to buy cryptocurrency is that there is no way to know. It’s nearly impossible to always time the market correctly, but there are a few methods and indicators which you can use to help ensure that even if you aren’t timing the market perfectly, you’re still leaving room for profit.
When to Buy Cryptocurrency?
If you’re planning on buying some cryptocurrency but are struggling to decide when to do so, you’re not alone. Even if you’re a professional trader, it’s easy to buy at the wrong time, not sell at the right time, and just generally make a move you regret later. Below we’ll discuss a few common indicators, strategies, and concepts to help you better decide when and how to buy crypto.
Bull vs Bear Markets
There are two types of markets often discussed by traders: bull and bear.
Bull markets are ones that are on the rise and where the macroeconomic conditions of the economy are mainly favorable. Bear markets exist in economies that are receding and where most assets such as stocks are dropping in value. Apart from being indicators, being bullish or bearish denotes how an investor feels about the current market and overall economic trends.
Bull markets are typically signified by sustained increases in asset (crypto, stock, commodity) prices. Investor confidence is often high during these times, and it’s likely that the country’s economy is strong with high employment in these scenarios. Investors are bullish, meaning they continue to invest with the idea that the market will continue to rise.
In contrast, bear markets are typically signified by sustained decline in prices, such as in the second half of 2022. Assets in bear markets drop at least 20% from their recent highs, and are often feared to continue dropping. This fear results in a downward trend that investors believe will continue (they’re bearish towards the market) and this can create a price spiral to the bottom. During bear markets, the country’s (if not world’s) economy slows down and unemployment rises as companies begin laying off workers to save costs.
Dollar Cost Averaging (DCA)
Dollar cost averaging, or DCA, is a trading strategy that involves buying set amounts of an asset over a period of time. For instance buying $100 worth of Bitcoin every month. It helps reduce the impact of crypto market volatility on the asset you purchase. This is because by buying at different prices, you’re less exposed to volatile price moves like you would be with a lump sum purchase. You can also lower your overall cost per unit over time.
For example, if you plan to buy $2,000 worth of Bitcoin you could split that amount and buy in 4 segments. You could buy $500 at $22,000, $500 at $18,000, $500 at $19000 and $500 at $20,000. Overall, this creates an average cost of $19,750. If instead, you chose to invest all $2,000 at $22,000, you’d end up with a much higher buy-in price, and lower profit if/when the price goes above your buy-in.
Using a DCA is a good strategy regardless of whether it is a bull or bear market. This is because if it is a bear market, you’ll continuously be buying at lower and lower prices, lowering your average cost. In a bull market, your average cost will likely rise, but it also presents an opportunity to sell and take some profits, alleviating any imbalances in purchasing price.
Relative Strength Index (RSI)
The Relative Strength Index (RSI), is just one of many trading signals used in technical analysis. It is a momentum indicator, meaning that it can signal whether an asset is currently being overbought or oversold. Traders then use this information to determine whether they should be buying or selling that asset. The RSI is shown as a line graph on a scale of 0 to 100 (image below). Generally, an RSI reading of 70 or above indicates an asset may be in an overbought situation (time to sell). A reading of 30 or below indicates an asset may be in oversold condition (time to buy).
As you can see in the image above, Bitcoin (BTC), is in the middle area of the RSI. This is a difficult position for it to be in because the indicator isn’t signalling anything in particular, and is likely an indication that the price is going to keep moving sideways.
Tip of the Iceberg
DCA and RSI are just one of many, many technical indicators used by professional traders to help determine their next move. The reality is that even when using these indicators, pros can still make the wrong decision, and this is true of you too.
Figuring out when to buy crypto is as much about timing the market as it is about doing what fits your situation best. This can be how much money you’re looking to invest, what your goals are for your investment, or the amount of time with which you have to research. In the end, there’s no guaranteed way to invest in crypto, or any sector, you can only do what’s best for you.