is (really) the right time to invest?

The question of whether or not to invest in these assets arises with each declining market trend. BFM Crypto sums up.

In discussion forums, many Internet users are wondering whether it is time after the strong downward movement of recent days to invest in cryptocurrencies to buy “cheap”. One month ago, during the last cryptocurrency crash, financial analysts were already talking about “sales” in the cryptocurrency market. Logically: the lower the price of cryptocurrency, the more interesting it may seem at first glance to buy it. However, there is no guarantee that prices will rise or fall. To do this, in traditional finance there is a saying:

“You don’t catch a falling knife”

In November, bitcoin reached an all-time high of $ 69,000 and then stabilized at about $ 40,000. One month ago, the cryptocurrency fell below $ 30,000. This Monday, it even briefly fell below $ 21,000, causing conflicting feelings of fear and a desire to invest in the asset or not.

According to Glassnode, we are seeing an acceleration in the concentration of buyers of cryptocurrencies (and in particular bitcoins) during the bearish phases. So there are now 102 wallets containing more than 10,000 bitcoins, compared to 75 when bitcoin was $ 65,000 last October. Specifically, some investors took advantage of the fall in bitcoin to re-enter the market or strengthen, hoping to make a profit later.

“Buy panic instead of euphoria”

This Tuesday, the main cryptocurrencies fell from the highest level: -70% for bitcoin, which is traded this Monday around 15:50 for $ 22,180 or -78% for the air, which is traded around $ 1,200. Therefore, the question arises: is this the right time if we want to invest in these assets?

“It’s always interesting to get on bitcoin, which lost 70%, and not on bitcoin, which costs $ 69,000 in complete euphoria. Historically, it is better to buy panic than bovine euphoria, ”explains Laurent Pinho, an analyst at Zonebourse.

One of the processes of entering the cryptocurrency market is the so-called dollar averaging strategy (DCA), which allows you to smooth over investment over time, helping to combat market volatility. This is also a piece of advice that stock market investors regularly give: you should buy on the go, not do everything at once.

However, it should be remembered that the more the asset loses value, the more it takes to increase even more to return to the previous level. In the case of bitcoin, for example, if it has lost 70% of its value since its highest level of $ 69,000, at a current price of $ 22,180, it will need to increase its price by 211% before returning to that record.

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

“Paradoxically, today’s $ 20,000 bitcoin will be less interesting in the psychology of investors than the $ 69,000 bitcoin. Although it touched $ 20,000 yesterday, we still do not see a positive technical response. Properly speaking. This will be enough for the market to take 30 or 40%, so that we hear more positive messages on social networks again, “said Xavier Feno, a trader and partner of Interactiv Trading.

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

“Here we get $ 4.7 billion in sales at a loss, and people who have invested more than $ 23,000. We are in a phase of accelerating decline, panic, as we have known in the past, “said Laurent Pinho.

Similarly, at Coinglass, brokers liquidated $ 1 billion in leverage positions, in other words, invested more than their original stake. Specifically, if a person puts on the market 1000 euros with a leverage effect of 10 (so his risk is 10,000 euros), when the cryptocurrency falls too much, as soon as it is -5%, for example, investment has halved to reach 500 euros with such leverage), the broker reduces its position and eliminates it. This leads to a sell-off in the market and intensifies the downward trend.

“Never use”

“You should never use 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 put only the money you do not need. Many French people, who did not keep this basic principle in mind, paid the price during the collapse of the luna cryptocurrency last month.

In addition to being highly correlated with traditional markets, the cryptocurrency market is sending many negative signals: a reduction in the number of jobs in crypto giants (Gemini, Coinbase), the failure of the Terra ecosystem recovery plan, and now Celsius. the platform runs out of money. If “sales” could have made you smile a month ago, the trend remains to be cautious before investing.

“You have to be careful when you are new to the market, because at that time it may be an opportunity to get out, but the fact that bitcoin has lost 70% of its value does not mean that it can not lose. more, ”recalls Xavier Feno.

The events of the coming days may affect the cryptocurrency market. Maybe still below. Because this Tuesday some questions remain unanswered: what will happen to Celsius customers’ money after the catastrophe caused by the collapse of Terra? Investors’ eyes will also be focused on the Federal Reserve’s news on Wednesday.

“Inflation remains very high, we are definitely waiting for the Fed’s decision to raise these interest rates tomorrow to 0.75 points or 1 point. Risky assets, such as cryptocurrencies, are at the forefront of selling to investors, so the context remains very bleak and complex, ”admits Laurent Pinho.

“Bitcoin is likely to return to its highs”

How far can cryptocurrencies fall in this context? A question may arise.

“We are not very far from the surrender phase.” I think we can get between $ 18,000 and $ 22,000, but the most is done: we’ve already lost more than 70% on bitcoin and ether. We can go a little lower to scare off retail investors, ”said Laurent Pinho.

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

“Institutions apply the same strategies for cryptocurrencies as for risky assets: if we look at the history of stock markets, it will grow in the long run. The same goes for the cryptocurrency market, which is always growing if we observe the widespread introduction of cryptocurrencies. , which we see, and from a technical point of view, bitcoin is likely to return to its peaks, “- says the latter.