is this (really) the right time to invest?

The question of whether to invest in these assets arises with every downtrend in the market. BFM Crypto sums up.

On discussion forums, many Internet users are wondering if it is time, after the strong downward movement of recent days, to invest in cryptocurrencies in order to buy “cheaper”. A month ago, during the latest crypto crash, financial analysts were already talking about “sales” in the cryptocurrency market. It is logical: the lower the price of a cryptocurrency, the more interesting it may seem at first glance to buy it. However, nothing can guarantee you that prices will rise or fall will end. There is a saying in traditional finance for this:

“You Can’t Catch a Falling Knife”

In November, Bitcoin hit an all-time high of $69,000 before stabilizing at around $40,000. A month ago, the cryptocurrency fell below the $30,000 mark. It even briefly fell below $21,000 this Monday, sparking conflicting feelings of fear and whether or not to invest in this asset.

According to Glassnode data, we are seeing an acceleration in the concentration of buyers of cryptocurrencies (and in particular bitcoin) during bearish phases. So there are currently 102 wallets holding over 10,000 bitcoins, up from 75 when bitcoin was worth $65,000 last October. Specifically, some investors have taken advantage of Bitcoin’s decline to re-enter the market or strengthen, hoping to make a profit later.

“Buy panic instead of euphoria”

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

“It is always interesting to enter a bitcoin that has lost 70%, not a bitcoin that is worth $69,000 in complete euphoria. Historically, it has been better to buy panic rather than bullish euphoria zones,” explains Laurent Pinho, an analyst at Zonebourse.

One process for entering the cryptocurrency market is the so-called dollar cost averaging (DCA) strategy, which allows you to smooth out your investments over time, allowing you to deal with market volatility. This is also advice regularly given to stock market investors: you should buy as you go, not bet all at once.

It should be remembered, however, that the more an asset loses value, the more it takes to gain even more to get back 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 at a current price of $22,180, then its price would therefore rise by 211% before returning to that all-time high.

We also need to be wary of the psychological consequences before investing. Today, there is an index called the “Crypto Fear and Greed Index” that measures the fear of investors in the cryptocurrency market. It analyzes the emotions of investors when making decisions to sell or buy bitcoins. This Tuesday it is the lowest – … 8 out of 100, or “extreme fear.” This level was reached during the last cryptocurrency crash, but it has since risen to 17 a month later.

“Paradoxically, $20,000 bitcoin will be less interesting to investor psychology today than $69,000 bitcoin. Although it touched $20,000 yesterday, we still haven’t seen a positive technical reaction. Strictly speaking. the market will take away 30 or 40% so that we again hear more positive messages on social networks,” says Xavier Fenot, trader and partner at Interactiv Trading.

Lost Bitcoin sales totaled $4.7 billion on Monday, a record high, according to data from Glassnode. By comparison, on Sunday, that figure was $542 million in sales at a loss.

“Here we have $4.7 billion in sales at a loss with people who have invested over $23,000. We are in phases of downward acceleration, panic, as we have known in the past,” says Laurent Pinho.

Similarly, on Coinglass, brokers liquidated $1 billion of positions for people who leveraged, in other words, invested more than their original stake. Specifically, if a person puts 1,000 euros on the market with a leverage effect of 10 (so their risk is 10,000 euros) when the cryptocurrency falls too much (for example, once it is -5%, the investment has already halved). to reach 500 euros with this leverage), the broker reduces his position and liquidates it. This leads to sell-offs in the market and reinforces the downtrend.

“Never Use”

“You should never use leverage in the cryptocurrency market because it is already quite volatile. You should always invest what you are willing to lose and invest gradually,” warns Xavier Feno.

Indeed, most analysts agree with this advice to bet only the money you don’t need. Many French people who did not have this basic principle in mind paid the price for the collapse of the Luna cryptocurrency last month.

In addition to currently being highly correlated with traditional markets, the crypto market is sending a lot of negative signals: job cuts for crypto giants (Gemini, Coinbase), the failure of Terra’s ecosystem recovery plan, and now Celsius. the platform ran out of money. If a sell-off could make you smile a month ago, the trend remains cautious 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. more,” recalls Xavier Feno.

The events of the coming days may have an impact on the cryptocurrency market. Maybe even down. Because some questions remained unanswered this Tuesday: after the disaster caused by the collapse of Terra, what will happen to the funds of Celsius customers? Similarly, investors’ attention will be focused on the news from the Federal Reserve (Fed) on Wednesday.

“Inflation remains very high, we are just waiting for the Fed’s decision to raise these interest rates tomorrow, to 0.75 pip or 1 pip. Risk assets like cryptocurrencies are at the forefront of selling by investors, so the context remains very bleak and complex.” , Laurent Pinho admits.

“Bitcoin is likely to return to its highs”

In this context, how far can cryptocurrencies fall? A question may arise.

“We are not very far from the capitulation phase (editor’s note: when no one else invests in the asset). I think we can go up between $18,000 and $22,000, but the biggest has already been done: we have already lost over 70% on bitcoin and ether. We can go a little lower to scare retail investors,” says Laurent Pignot.

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

“Institutionalists apply the same strategies to cryptocurrencies as to risky assets: if we look at the history of stock markets, we see that in the very long term they grow. market by downscaling.With the massive adoption of cryptocurrencies that we are seeing, and from a technical standpoint, bitcoin is likely to return to its peaks, ”says the latter.