is it (really) the right time to invest?

The question of whether or not to invest in these assets arises with every downtrend in the market. BFM Crypto takes stock.

On the discussion forums, many internet users are wondering if, after the strong downward movement of the past few days, it is time to invest in cryptocurrencies to buy “cheap”. A month ago, during the latest crypto crash, financial analysts were already talking about “sale” in the cryptocurrency market. Logically, the lower the price of a cryptocurrency, the more interesting it seems at first glance to buy it. However, nothing can assure you that prices will rise or that the decline is over. There is an adage for this in the traditional financial world:

“You don’t catch a falling knife”

In November, bitcoin hit an all-time high of $69,000 before stabilizing around $40,000. A month ago, the cryptocurrency dropped below $30,000. As of Monday, it even briefly dropped below $21,000, sparking conflicting feelings of fear and a desire to invest or not in this asset.

According to data from Glassnode, we are seeing an acceleration in the concentration of buyers of cryptocurrencies (and especially bitcoins) during bearish phases. For example, there are now 102 wallets that hold more than 10,000 bitcoins, compared to 75 when bitcoin stood at $65,000 last October. Specifically, some investors took advantage of bitcoin’s fall to re-enter or bolster the market, hoping to turn a profit later.

“Buy panic instead of euphoria”

On Tuesday, major cryptocurrencies fell from their highest levels: -70% for bitcoin, which trades around 3:50 PM this Monday, against $22,180 or -78% for ether, which trades around $1,200. So the question arises: is this the right time if we want to invest in these assets?

“It’s always interesting to get into a bitcoin that has lost 70% instead of a bitcoin that’s at $69,000 in full euphoria. Historically, it’s better to buy panic rather than zones of bullish euphoria,” explains Laurent. Pignot, analyst at Zonebourse. †

One of the processes for entering the cryptocurrency market is the so-called Dollar-cost averaging (DCA) strategy, which allows you to ease your investment over time so that you can deal with market volatility. This is also advice regularly given to stock market investors: you should buy as you go rather than bet all at once.

However, it should be remembered that the more an asset loses in value, the more it will take an even greater rise to return to its previous level. In the case of bitcoin, for example, if it has lost 70% of its value since its high of $69,000, with a current price of $22,180, it will therefore take a 211% price increase before returning to this record. .

We should also be wary of the psychological effects before investing. Today there is an index called “Crypto Fear & Greed Index” which measures the fear of investors in the crypto market. It analyzes the emotions of investors when making decisions to sell or buy bitcoins. This Tuesday is lowest at… 8 out of 100, or “extreme anxiety.” This level had been reached during the last crypto crash, but had risen to 17 a month later.

“Paradoxically, today a $20,000 bitcoin will be less interesting in investor psychology than a $69,000 bitcoin. Although it reached $20,000 yesterday, we are still not seeing a positive technical response. Strictly speaking. It will be enough for the market to take 30 or 40% for us to hear positive messages on social networks again,” says Xavier Fenaux, trader and partner at Interactiv Trading.

According to data from Glassnode, there was $4.7 billion in lost bitcoin sales on Monday, a record high. By comparison, that figure was $542 million in sales at a loss on Sunday.

“Here we are at $4.7 billion in lost revenue with people who had more than $23,000 invested. We are in the phases of downward acceleration, of panic as we have known in the past,” said Laurent Pignot.

Similarly, on Coinglass, $1 billion in positions were liquidated by brokers for people using leverage, in other words investing more than their initial stake. Specifically, if a person has put 1000 euros on the market with a leverage of 10 (his exposure is therefore 10,000 euros), when the cryptocurrency falls too much (for example, once it is -5%, the investment is already halved to 500 euros). achieve with such leverage), the broker cuts its position and liquidates it. This leads to a sell-off in the market and reinforces the downward trend.

“Never take advantage”

“You should never take advantage of the cryptocurrency market because it is already volatile enough. You should always invest what you are willing to lose and invest gradually,” warns Xavier Fenaux.

Indeed, most analysts agree with this advice to only bet money you don’t need. Many French, not having this basic principle in mind, paid the price during the luna cryptocurrency collapse last month.

Besides the fact that the crypto market is currently highly correlated with traditional markets, the crypto market is sending out many negative signals: reduction in the number of jobs at crypto giants (Gemini, Coinbase), failure of the Terra ecosystem recovery plan and now the Celsius platform is running out of money. Lake. If the “sale” could have made you smile just a month ago, the trend continues to be to exercise caution before investing.

“You have to be careful when you are new to the market because while it may be an opportunity to get in at the time, just because bitcoin has lost 70% of its value doesn’t mean it can’t. “, remembers Xavier Fenaux.

The events of the coming days could have an impact on the cryptocurrency market. Maybe even down. Because some questions remain unanswered this Tuesday: what will happen to the funds of the Celsius company’s customers after the disaster caused by the collapse of Terra? Likewise, investors’ eyes will be on Wednesday’s news about the Federal Reserve (Fed).

“Inflation remains very high, we are exactly waiting for the Fed’s decision on raising this rate tomorrow, to 0.75 points or 1 point. Risky assets such as cryptocurrencies are on the front line to be sold by investors, so the context remains very bleak and complicated,” admits Laurent Pignot.

“Bitcoin Will Likely Return to Its Highs”

How far can cryptocurrencies fall in this regard? The question may arise.

“We are not far from the capitulation phase (Editor’s Note: When no one invests in an asset anymore). I think we can go between $18,000 and $22,000, but the biggest is done: we’ve already lost over 70% on bitcoin and ether, we could go a little lower to scare retail investors,” said Laurent Pignot.

However, like many analysts or people who have entered the cryptocurrency market, he prefers to look at the long term.

“Institutional institutions apply the same strategies to cryptocurrencies as they do to risky assets: if we look at the history of the stock markets, it goes up in the very long run. The same goes for the cryptocurrency market, which always goes up when we look at the market by zooming out. With the mass adoption of cryptocurrencies we are seeing and from a technical standpoint, bitcoin is likely to return to its peaks,” the latter continues.

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