Last Updated: 13 June 2022
The cryptocurrency prices are turning dark red today, bitcoin and ethereum have both dropped by 7%. The question on everyone’s lips is: are we near a bottom and is this the right time to buy?
Important levels broken through
Since the beginning of the year, the crypto markets have been in an almost continuous state of turmoil. As you can see below, the bitcoin price has lost 47% since 1 January.
For a long time, the level around 28,600 euros (30,000 dollars) seemed to be a strong lower limit for bitcoin. The price seemed to dip below this level for a while, only to rebound strongly from it.
Short term trend broken
In the meantime bitcoin has fallen to 24,600 Euros at the time of writing. In the price chart below, that “unbreakable” zone is indicated by the blue block. The value of bitcoin is expressed in euros below.
The orange line follows the average value of the past 100 candles, each candle lasts one hour, so the orange line is actually the weighted average of the past 100 hours (MA).
A period of 4 days and a bit is not very long, but in this market it is significant. Currently, the price is moving well below the 100 MA line and many a trader would see this as a good buying opportunity.
Zooming out further we see that bitcoin is also moving below the daily 50MA line. In the chart below each candle represents 1 day and the blue line represents the weighted average of the past 50 days.
You could conclude from this that it was a good time to buy bitcoin from the beginning of May as the weighted average was above the real price. If you have 100 Euros in your account and you buy 100 Euros of bitcoin on the 1st of May, there will be very little left.
Don’t go all in on a dip
This is why many investors who are in it for the long haul do not see this as a time to go all in, but to slowly buy periodically. Instead of investing your entire 100 euros at once, it is better and safer to spread that amount over a long period, for example 5 euros per week or 10 euros per month.
Investors with a long breath usually win. Warren Buffet is a good example of this, he says: “Time in the market beats timing in the market.”
Everything will be all right
Since the beginning of the year, bitcoin is down 47%, but look at how these prices have performed since January 1:
- Netflix: -67%
- PayPal: -55%
- Facebook: -44%
- Tesla: -42%
For investors, it is important to zoom out when a global crisis grips the world economy. Look at the climate and not the weather and you will see that in the case of the economy, everything will eventually be fine again. During the 2008 housing crisis, economists and anonymous people online also shouted that this would be the end.
In 2008, the crisis spread from America to the rest of the world. The S&P 500 saw one of the steepest declines: -58% in just under a year and a half. 5 years later, the price of the index had tripled since the low point of the crisis.
This also applies to bitcoin, which has gone through several cycles and has always rebounded. In fact, in bitcoin’s history, 100% of all investors who have held their BTC for 4 years or more have made a profit.
Time is your friend
Today the price may have fallen, but the lesson is to take advantage of this by recognising the pattern. Extend your time horizon and the trend actually becomes easier to predict.
In the logarithmic chart below each candle represents 1 month and we are looking at bitcoin since 2010. The long term trend is that every 3 to 4 years the price dips below the 9 month weighted average. This is indicated by the red circles. And each time bitcoin jumps out of the red circle to make new highs.