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Is NOW the right time to invest in Bitcoin?

By June 10, 2022July 13th, 20226 minute read
Note: This blog is written by an external blogger. The views and opinions expressed within this post belong solely to the author.

A dedicated community has sprouted around bitcoin over the last decade. It’s impossible to say whether or not this cryptocurrency will become the world’s reserve currency or a universally acknowledged store of value like gold. Some investors are wary of the thrill of riches or ruin, but others are eager to pursue the possibility of massive profits from investing in bitcoin. In 2022, Bitcoin is far less risky than it was in 2012 and is a breakthrough technology. El Salvador’s decision to make bitcoin legal tender in 2021 is likely to inspire other governments to follow suit, while others may reject it outright in an effort to preserve their fiat currency. In the current geopolitical landscape, Bitcoin has taken center stage, and 2022 appears to be the year of widespread adoption.

Buying Bitcoin, like any speculative investment, definitely involves risk. Bitcoin was the first digital asset that spawned today’s crypto economy. For a long time, it had an underground following of investors who regarded it as a potential substitute for the physical monetary system. Bitcoin has now become a household name as institutions and governments seek to meet their consumers’ increasing need for exposure.

As traditional finance recognizes Bitcoin’s potential for disruption, they must choose whether to accept cryptocurrencies or not. Ultimately, the decision to invest in bitcoin boils down to your risk tolerance and your perspective on the future of finance. Traditional investors may be interested in Bitcoin as a measure to safeguard themselves against inflation and the possible collapse of the fiat-based financial system. However, Bitcoin’s volatility is a major concern for many investors, although it is predicted to diminish indefinitely as institutions and governments become involved.

In order to receive a better exchange rate for your Bitcoin, you need to know when to buy it. In general, Bitcoin and the cryptocurrency market are volatile, and price fluctuations range from minutes to days and even months. Hence, timing is crucial to make the most out of your cryptocurrency investment.

What’s the right time to invest in Bitcoin?

At a time when an asset’s value is expected to rise, buying it for a low price is considered a sound investment approach. When comparing Bitcoin’s value since April, one may argue that it has seen a price drop. Again, predicting when Bitcoin will rise or fall further is difficult. There is no such thing as a perfect time to invest in Bitcoins. However, if your goal is long-term gains, you might consider buying during a dip or during bear markets and holding it until you earn a profit.

Buying the Dip in Bull Markets

In the classical definition, dip implies rapidly or briefly immersing anything in liquid. However, in the domain of cryptocurrencies, a dip is the act of buying an item after its value has fallen. Buying a dip implies that you have a chance to invest in a currency or token whose value has declined in the short or long term.

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This strategy is best suited for a bull market or a stagnant market, when the general trend is up or sideways, as opposed to bear markets where the general trend is downwards.

Dip buying can even lessen your average cost of holding a position; nevertheless, the risk and benefits of dip-buying must be examined on a constant basis.

Remember that buying the dip does not guarantee you any profits. An asset’s price might fall for a variety of reasons, including changes in its fundamental worth. Simply because the price is lower than it has ever been in its history does not suggest that the asset offers good value.

Looking at the charts might help you spot dips. Candlesticks are an excellent tool for detecting possible dips. A green candle indicates that the price has climbed since the candle’s inception. A red candle, on the other hand, implies a price drop. Dips can be identified as one or numerous red candles in succession, depending on the time range you’re looking at. Buying the dip is purchasing an asset at the very bottom of the previous red candle before the trend flips and prices begin to rise again.

However, while it sounds quite simple, a trader must do thorough market research to confirm that the current trend is not a bear market and the chances of prices further collapsing from that position are less.

Investing in Bear Markets

A bear market occurs when the value of cryptocurrencies has plummeted by at least 20% and continues to fall. One well-known example is the December 2017 cryptocurrency crash, in which investors witnessed a Bitcoin plunge from $20,000 to $3,200 in a matter of days.

A declining bear market is defined as a 20% or more drop from previous highs. As a result, prices are low and continue to fall. The downward trend also influences investors’ outlook and perpetuates the downward trend. The name “bear” is said to derive from a bear’s fighting style, which involves beginning high and hitting with claws downward and all of its weight pressing down.

Bear markets lack the broad optimism and confidence that most investors experience during bull markets.

Typically, crypto traders like to buy assets during a bear market, particularly at rock bottom. However, it may be difficult to determine when a bear market has finished, making it difficult for investors to incur the risk of buying a low-value cryptocurrency that may or may not recover.

Prices often fall when the market learns about unfavorable conditions involving a specific cryptocurrency or asset. The negative spiral drives more individuals to delay investments because they believe that more bad news is on the way and that they should prepare themselves for the worst.

Some panic and sell their holdings, contributing to the downward trend. Bear markets ultimately calm down, and investors gradually regain confidence, ushering in a new bull cycle.

Investing in a bear market is generally riskier because prices are lower, and investors have little to no faith in cryptocurrencies. However, this risk is accompanied by the chance of larger future returns. As a result, you may buy cryptocurrencies at lower prices and sell them at the top of the next bull market.

Another method used by investors is to sell their existing assets as soon as they discover a downtrend and then purchase them back later at a much lower price as the market keeps falling. All of this, however, requires some fundamental understanding of how to analyze charts.

It’s impossible to pinpoint how long a bear market will persist, especially if it’s caused by a recession or other similar situations. So the problem is that no one knows how long the price drop will last or how far prices can fall. As a result, you may make an illogical buy or lose out on a great investment.

Is NOW a good time to buy Bitcoin?

To understand if now is the right time to invest in Bitcoin, we must first gauge the market’s overall sentiment.

The “Bitcoin Monthly” report from Ark Invest, issued by CEO Cathie Wood and other ARK Invest experts, includes a crypto market overview as well as insights on relevant on-chain activities over the past month.

According to the report, ‘hodlers’ are stronger than ever, with 66% of Bitcoin’s supply remaining unchanged for almost a year. This demonstrates the market’s longer-term commitment as well as a current holder base with greater conviction.

The analysis that follows confirms that, according to Glassnode data, short-term investments plummeted -35% below their breakeven price. This proportion was last observed in January 2022, July 2020, and March 2020. The aggregate long-term and short-term holdings remain above the breakeven price, implying that widespread capitulation has not materialized.

Bitcoin futures open interest has also reached an all-time high of about 480,000 BTC. Overall, Ark Invest remains positive on the Open Interest analysis, indicating that Bitcoin’s Perpetual Contracts are now trading at a highly bullish discount to the spot market.

At the time of writing, it’s not just Ark investments. Several other analysts have also voiced similar opinions. However, as of now, Bitcoin continues its sideways movement, and it is yet to be seen which direction the trend continues from here.

We are still early

Ultimately, it all comes down to whether or not you are comfortable investing in current conditions. There’s no simple answer to what’s the best time to buy bitcoin. If you are looking at the bigger picture, we are still early in the game, and Bitcoin, along with the entire industry, has a lot of room to grow. This means more opportunities for investors. 

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
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