The price of Bitcoin has been whipsawing ever downward since the beginning of the year. As the hangover from the largest price bubble in history pops, many long-term investors have been waiting for a single signal to show them it’s time to start buying again.
Before we get to this indicator, we should ask ourselves when is the best time to invest? There are a few schools of thought on this idea.
Dollar Cost Averaging
Some investors will say there is never a “best” time to invest, which is true because we can’t predict future price movements. Instead, a set amount of funds should be used to purchase assets at a set period continuously. For example, you buy $100 worth of Bitcoin every week, totaling $400 every month. Regardless if the price is higher or lower than previously, you make the same amount of purchase, which averages out over a long period of time, also known as Dollar Cost Averaging (DCA).
Investors use this strategy to manage risk, as trying to buy once or twice during a dip or when they thought prices were “low” is similar to gambling and not a healthy long-term strategy. DCA is a very effective way for those who have a fixed monthly budget to set aside a certain amount every month.
Relative Strength Index
Another great way to look for long entry points is to use RSI and other technical analysis. RSI is short for Relative Strength Indicator, that measures the magnitude of recent price movements to determine if they are overbought or oversold. A number higher than 80 is considered overbought and oversold if under 20.
Taking a look at a BTC daily chart we can see that RSI has gone under 20 twice since the beginning of the year. First was on 15 February, when the price dipped to 6680, while the second was on 13 June when the price dipped to 6115. In retrospect, the price has gone lower at times, but overall, if you had made your two major purchases at those times, your average Bitcoin price would be lower than what it is today (6650).
I’m a big believer in keeping it simple, so using trendlines are one of the best ways to mark uptrends and downtrends. Drawing trendlines is a bit of an art, but it’s an easy, yet powerful tool to quickly identify when a breakout occurs.
Looking at the chart, we are still in an extended downtrend. Once prices move and stay above the trend, this would indicate a higher chance we have flipped the trend to the upside.
Ultimately, though, many will tell you technical analysis is bullshit, which is half true, but that’s a story for another time.
Best Indicator to Buy for the Long Term
Since the markets have turned over in December, the markets have been whipsawing too much to think about entering. The one indicator I’ve been waiting for to hit lows is Volatility, a measure of the expected move in the future.
Volatility is such a powerful indicator because it is considered to be a fear index. When it is high, price is expected to move significantly. When it is low, it’s not. Simple. As a long term investor, low volatility ensures that many of the speculators who rode the wave up and down have now left the market, making it a more optimal time to start to accumulate.
Let’s look at a BTC chart from the last bubble. You can see that after a year and a half, prices flattened out and stopped moving so much, then it went through an accumulation period, after which it started to churn higher for the next year and a half. I believe this pattern should happen again.
BTC volatility is at lows for this year, signaling that it’s time to look at the market again. We may not have hit the bottom yet, but we definitely are getting near. So be prepared, have your entry points chosen and patiently wait, the time will come soon for you to get filled and wait for the move higher.