is it (really) the right time to invest?

The question of whether or not to invest in these assets comes up 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 recent days, it is time to invest in cryptocurrencies to buy “cheaply”. A month ago, during the last crypto-crash, financial analysts were already talking about “sales” in the cryptocurrency market. Logically: the lower the price of a cryptocurrency, the more interesting it may seem at first glance to buy it. However, nothing can assure you that prices will go up or that the fall is over. There is an adage in traditional finance for that:

“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 fell below the $30,000 mark. This Monday, it even briefly fell below 21,000 dollars, creating contradictory feelings of dread and the desire to invest or not in this asset.

According to data from Glassnode, we see an acceleration in the concentration of buyers of cryptocurrencies (and in particular bitcoins) during bearish phases. Thus, there are now 102 wallets that hold more than 10,000 bitcoins, compared to 75 when bitcoin was at 65,000 dollars last October. Concretely, some investors took advantage of the fall of bitcoin to re-enter the market or strengthen, in the hope of making profits later.

“Buy panic instead of euphoria”

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

“It’s always interesting to get into a bitcoin that has lost 70% rather than a bitcoin that is at 69,000 dollars in full euphoria. Historically, it is 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 smooth your investment over time, allowing you to deal with market volatility. This is also a piece of advice regularly given to stock market investors: you have to buy as you go rather than betting everything at once.

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

We must 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 investors’ emotions when making decisions to sell or buy bitcoins. This Tuesday, it is at its lowest at … 8 out of 100, or “extreme fear”. This level had been reached during the last crypto-crash, but it had since risen to 17 a month later.

“Paradoxically, today, a bitcoin at $20,000 is going to be less interesting in the psychology of investors than a bitcoin at $69,000. While it touched $20,000 yesterday, we still do not observe a positive technical reaction. Strictly speaking. It will be enough for the market to take 30 or 40% for us to hear more positive messages again on social networks”, considers Xavier Fenaux, trader and partner at Interactiv Trading.

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

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

Similarly, on Coinglass, $1 billion in positions were liquidated by brokers for people who used leverage, in other words invested more than their initial stake. Concretely, if a person has put 1000 euros on the market with a leverage effect of 10 (his exposure is therefore 10,000 euros), when the cryptocurrency drops too much (as soon as it is -5% for example, the investment has already halved to reach 500 euros with such leverage), the broker cuts his position and liquidates it. This leads to a sell-off in the market, and reinforces the downtrend.

“Never Leverage”

“You should never use leverage on the cryptocurrency market because it is already volatile enough. You should always invest what you are ready 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 people, who did not have this basic principle in mind, paid the price during the collapse of the luna cryptocurrency last month.

In addition to being currently strongly correlated to traditional markets, the crypto market is sending a lot of negative signals: reduction in the number of jobs at crypto giants (Gemini, Coinbase), failure of the recovery plan for the Terra ecosystem and now the Celsius platform running out of cash. If the “sales” could make you smile a month ago, the trend remains to be cautious before investing.

“You have to be careful when you’re new to the market, because while it might be an opportunity to come in at that time, just because bitcoin has lost 70% of its value doesn’t mean it can’t. not lose more”, recalls Xavier Fenaux.

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

“Inflation remains very high, we are precisely waiting for the Fed’s decision on the increase in these interest rates tomorrow, to 0.75 point or 1 point. Risky assets such as cryptocurrencies are in the front line to be sold by investors, so the context remains very gloomy and complicated”, admits Laurent Pignot.

“Bitcoin is likely to return to its highs”

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

“We are not very far from the capitulation phase (Editor’s note: when no one is investing in an asset anymore). I think we can go between 18,000 and 22,000 dollars, but the biggest is done: we have already lost more than 70% on bitcoin and ether. We can go a little lower to scare retail investors”, considers Laurent Pignot.

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

“Institutionals apply the same strategies on cryptocurrencies as on risky assets: if we look at the history of the equity markets, over the very long term it goes up. It is the same on the cryptocurrency market, which always goes up if we watch the market by zooming out. With the mass adoption of cryptocurrencies that we see and from a technical point of view, bitcoin is likely to return to its peaks”, advances the latter.

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