"When is the best time to buy bitcoin?" is a common concern and question among cryptocurrency newbies and even professionals. It’s difficult to get a precise answer considering the volatile nature of bitcoin. Over time, many cryptocurrency analysts have studied bitcoin price movements, minute, hourly, daily, weekly, monthly, and yearly price changes.
It’s common ground that the only way to make predictions in bitcoin is to study the price over a timeframe and this is hardly precise as we can never be 100% certain of the direction the bitcoin and cryptocurrency market will take. It takes a bitcoin technical and a fundamental analyst to study the best time to buy bitcoin, but this also can't be fully relied on.
The main factor determining when is the best time to buy bitcoin is whether it is for a short-term or long-term investment.
Bitcoin price changes are studied with the price chart over time using fundamental and technical analysis. However, there is a technique most long-term investors use to invest over a period of time, this technique is known as Dollar Cost Averaging.
Using Dollar Cost Averaging to Buy Bitcoin
Dollar Cost Averaging (DCA) is a finance market investment technique that involves investing in installments at regular intervals over a set period of time, regardless of the asset price. Cryptocurrency investors use DCA to buy bitcoin at different prices to reduce volatility's impact on their portfolios. Using DCA in bitcoin investment helps neutralize the effect of the short-term market downtrends on your bitcoin investment. If the price of bitcoin falls while you are dollar-cost averaging, you still profit if the price rises again. It’s important to note that DCA is mostly used for long-term investment and this technique is used to beat sudden market volatility.
DCA Investment Strategy
Below is a graphical representation of how to implement the DCA strategy in bitcoin investment.
- Choosing how much you can afford to invest in bitcoin each month is the first stage in DCA (If you want to invest monthly). Additionally, you should ensure that the amount you plan to commit fits inside your spending plan to stay the same throughout your investment. In the graphical representation above, the investor is comfortable with committing $1000 monthly over a year.
- You then need to choose a suitable cryptocurrency exchange for you to buy bitcoin easily, CoinEx is recommended. With CoinEx you can easily deposit Fiat, and trade smoothly with a user-friendly interface. CoinEx supports several deposit methods like Mastercard, Mercuryo, MoonPay, Advcash, Banxa, SWIFT, and Simplex. On CoinEx you can buy and trade major cryptocurrencies like Bitcoin(BTC), Ethereum(ETH), BNB, and other famous and emerging cryptocurrencies.
- Finally, you must fulfill your commitment and buy bitcoin regularly. This may occur on a weekly, monthly, or quarterly basis. Following our graphical illustration above, the Investor buys $1000 of bitcoin every month ignoring the price of bitcoin over the period of a year.
Tabular DCA Illustration
Mr. Michael DCA Investment Table for One Year
Mr. Michael Invested $1000 monthly regardless of BTC price using the DCA technique. Mr. Michael invested a total of $12,000 in 12 months. At the end of the investment period, Mr. Michael's portfolio worth of bitcoin was $13,790. Mr. Michael gained $1,790 after implementing the DCA technique.
Limitations of DCA
DCA is an investment strategy used by investors to lower risk by making investments over a lengthy period of time, but it has limitations. The bitcoin market is volatile and makes minute changes in marginal price. The investor misses the opportunity to make minute changes in marginal price and misses the opportunity of making profits from short-term upward trends. An Investor using the DCA strategy is mostly for the long term and due to this installment investment, the investor loses short-term bullish runs. An investor also needs to understand that DCA is not a sure bet always to make profits in bitcoin investment regardless of the volatile nature of bitcoin. Before choosing to use the DCA strategy, it is also still necessary to do research before using this technique.
Buy Low Sell High Strategy
Buy Low Sell High strategy is another strategy used in profiting from bitcoin investment, this can be short-term or long-term. This technique is mostly used by bitcoin traders and not investors. Traders leverage price differences over a period of time to make profits. This can also be called arbitrage trading, traders set long positions (buy) when the price of bitcoin is low and sell when the price is high and gain profits from that trade. Use the illustration below to understand how to use the “Buy Low, Sell High” strategy.
Tabular Buy-Low-Sell-High Illustration
Mr. Michael bought $10,000 worth of bitcoin at the rate of $21,000
Mr. Michael gains $476 after a short-term uptrend ($21,000 to $22,000)
Due to the volatile nature of bitcoin, this strategy comes with a lot of risks especially taking this strategy without fundamental and technical analysis of bitcoin during your trading period. It is also important to note that trading bitcoin or bitcoin investments come with risks that an investor or a trader is willing to take.
It’s difficult to be precise about the best time to buy bitcoin, this has always been a concern to bitcoin investors both newbies and professionals. A lot of analysts try to predict the best time to buy bitcoin using previous bitcoin charts and technical tools but this isn’t always accurate. The price of bitcoin is influenced by a lot of external factors and you will need fundamental analysts to study these factors.
Due to the volatility and wide range of external influences on the bitcoin market, fundamental analysis is essential when deciding the best time to buy bitcoin. The price of bitcoin and its potential future value is greatly influenced by currency inflation, particularly that of the USD, and international regulatory constraints. Analysts evaluate investor sentiment to determine when to buy bitcoin because it is a fundamental component that influences bitcoin price.