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When to Buy Bitcoin? The Best Time to Invest in BTC

[Updated 20 July 2022]

Summary

  • We look at the latest bitcoin trends, including macro risks and on-chain/flow metrics, to reveal the best time to buy bitcoin and the risks of buying BTC.
  • For trading bitcoin over the next two to four weeks, we are bearish. That means we expect falling prices.
  • However, we think bitcoin is a good long-term investment for the next one to three years and are bullish overall. That means we expect the bitcoin price to rise in the long term.

Is Now a Good Time to Buy Bitcoin?

The bitcoin price has rebounded lately. It is currently up around 11% over the past seven days. A rally in tech stocks in Europe and Asia helped the rise – we know crypto is highly correlated to tech stocks these days (currently, bitcoin’s correlation to the NASDAQ is around 78%). However, if we zoom out slightly, we are quickly reminded that bitcoin is still amid a 67% cumulative drawdown from the November 2021 all-time highs.

Crypto markets continue reacting negatively to news around inflation and rate hikes with the Fed looking to raise interest rates at the next meeting by 75bp to combat a 40-year high in inflation. We are also seeing a strong dollar as investors turn away from risky assets, which could negatively affect the BTC price.  

We think the Fed is not done with an aggressive hiking cycle, and recession risks are increasing. This means macro is weighing on crypto. The question, then, is how low could crypto go? Are we at extreme undervaluation levels, or is more meaningful downside possible?

Overall, the macro backdrop for bitcoin is bearish. We analyse various on-chain/flow metrics for bitcoin, which are neutral. Therefore, if you have a two-to-four-week horizon, now may not be the best time to buy bitcoin.

Should I Buy Bitcoin Now? No

Why Has the BTC Price Dropped?

Macro Reasons for the Current Bitcoin Price

Crypto markets almost looked like they had partial immunity from the tech sell-off and growing risk aversion. But recent price action has put paid to that notion. The relative stability of bitcoin between mid-January and mid-April, when it choppily trended up with higher highs and higher lows, was simply the calm before the storm. Bitcoin is down 67% since its November high of $67,734 (Chart 2 is a BTC price chart). And there is likely more to come.

The crux of the matter is that US interest rates are rising. Years of low interest rates since the global financial crisis in 2008 have seen markets reach extreme valuations. Who cares if tech companies are loss-making if the companies can borrow easily? And if companies cannot borrow money, they can attract capital from investors, who themselves have likely borrowed money.

Crypto markets have not been immune to the support from cheap leverage in the fiat markets. After all, crypto offers the tech dream of scalability and regulatory arbitrage. And if there was any doubt that crypto was not benefiting from low interest rates then the recent declines in crypto as US rates have risen should remove it. 

Furthermore, the correlation of bitcoin to NASDAQ started to increase sharply just as US interest rates started to rise. This is a common occurrence throughout history. When the liquidity tap turns off, usually by central banks raising rates, the correlation between diverse assets shoots up. This time appears no different.

How Low Can Bitcoin Prices Go?

One exercise is to see how low prices could get were the NASDAQ to suffer a 2000-style crash. After all, the bitcoin and NASDAQ correlation remains around 75%. So where the NASDAQ goes, bitcoin follows.

Back in 2000, the NASDAQ suffered a 78% drawdown. Currently, the NASDAQ is in a 30% drawdown. A repeat of the 2000-style drawdown would put the NASDAQ at 3,500. So where would crypto be if NASDAQ were trading at this level? We estimate a regression between bitcoin/ethereum returns and NASDAQ returns from 2020 onwards. Based on this relationship, we find:

  • Bitcoin prices would reach $8,254 if the NASDAQ fell to 3,500. This implies a 72% decline from current levels.
  • Ethereum prices would reach $143 if the NASDAQ fell to 3,500. This implies a 92% decline from current levels.

What Else Is Happening in Crypto?

Regulation is becoming more of a theme throughout 2022, with various executive orders signed already. Increased regulation should mean less uncertainty around crypto markets for investors, which would be bullish.

On the flip side, overregulation could stifle innovation. The ongoing regulatory backdrop will be key to monitor.

There are several macro events to keep track of over the coming weeks that will influence crypto prices:

  1. Rising yields have mechanically increased the probability of a recession within the next 12 months to over 50%.  
  2. Inflation remains at the forefront of investors’ minds, with PPI and retail sales data also due this week.  
  3. Celsius, one of the biggest crypto lending platforms, has stopped all transactions and withdrawals due to ‘extreme market conditions’.  Crypto is currently facing a credit crunch with lenders like Celcius in a liquidity crisis.
  4. Goldman Sachs is reportedly looking to raise $2bn to buy Celsius assets if they go bankrupt.
  5. Voyager Digital has issued a notice of default to one of the most active crypto hedge funds, Three Arrows Capital (3AC). This comes after crypto lenders BlockFi and Genesis liquidated some of 3AC’s positions after a margin call.
  6. Harmony is the latest blockchain to be hacked. Hackers stole $100mn worth of crypto and exchanged it for ethereum.
  7. MicroStrategy Inc, a large investor in bitcoin that has accumulated over 129,000 bitcoins over the past two years, faces a margin call if bitcoin falls below $21,000. It is currently trading around $22,000. The investor would be obligated to sell some of its bitcoin holdings should such an event happen, though CFO Phong Le has said that adding more collateral to its loan could avoid that situation.  
  8. Binance, one of the largest crypto exchanges, temporarily halted withdrawals amid the crash. 
  9. Coinbase exchange announced it is cutting over 1,000 employees. CEO Brian Armstrong cited changing economic conditions, recession risks, and growth problems as some of the reasons for the changes. 

Summary of BTC Analysis

The bottom line is that crypto, including bitcoin, will remain under pressure. For bitcoin, this means another breach below $20,000 is possible. The main near-term support would be Fed dovishness rather than any crypto-specific dynamics. And for long-term investors, we still think some allocation to crypto makes sense – just like an allocation to equities also makes sense. But be prepared for near-term weakness.

For all our latest analysis on crypto markets, click here.

Bitcoin and Crypto Price Trackers

Crypto markets have been volatile as investors digest hawkish Fed minutes, inflation coming in hot again (9.1% for June), and the ongoing crypto credit crunch (Celsius is the latest lender to file for bankruptcy). The macro backdrop is still bearish with elevated recession probabilities alongside more rate hikes expected at the next Fed meeting at the end of the month.

It is not just hot inflation that is weighing on crypto sentiment. DeFi has been under pressure ever since the TerraUSD collapse. Celsius, one of the biggest crypto lending platforms, is the latest to come under fire after locking users out of their funds by pausing all withdrawals. Our latest stablecoin update investigates what the implications of the Celsius debacle could be for crypto. Other factors include recession risks and significant layoffs at large crypto institutions like Coinbase – our latest ethereum update goes into detail.

As for our various indexes, performance is mixed (Charts 1 and 2). Our DeFi and Privacy Indexes are up just 1% over the past seven days. Meanwhile, our Bitcoin, Smart Contract, and Metaverse Indexes are all down between 4% and 6%. Prices have started to recover over the past 24 hours with bitcoin and ethereum trending up since this morning.

Our Privacy index replaces our DeFi index as the most correlated to bitcoin at 89% (Chart 3). Our Metaverse Index remains least correlated to bitcoin at 85% (this is up 9pp compared to last month). On macro markets, bitcoin’s correlation to tech increases compared to last month. Meanwhile, its correlation to Oil has come down (Chart 4).

  • Smart Contract Platform Index: All coins in this index are down. Avalanche (AVAX) is down the least at 3%. Terra (LUNA) is down the most at 18%, followed by Polkadot (DOT) at 8%.  Ethereum is down 4%.
  • DeFi Index: Aave (AAVE) is up the most at 28% followed by Uniswap (UNI) at 22%.  Terra (LUNA) is down the most at 18% followed by Maker (MKR) at 10%.  
  • Metaverse Index: Phantasma (SOUL) is up the most at 12% and Gala (GALA) is down the most at 13%.
  • Privacy Index: Beam (BEAM) is up the most at 38% and Dusk Network (DUSK) is down the most at 10%.
  • Bitcoin: this is down 5%.

Should I Invest in Bitcoin? (A Beginner’s Guide)

Bitcoin and the crypto revolution are no longer nascent. With the length of the blockchain continuing to grow and decentralised finance (DeFi) gaining ground over traditional finance, this new asset class is reshaping the investment landscape.

We think bitcoin is a worthwhile long-term investment. However, we also note that bitcoin is extremely volatile. That means it experiences large price movements over short periods. Before investing, you must understand the risks involved: you could lose all or a large portion of your investment. Never invest money that you cannot afford to lose.

How to Make Money Investing in Bitcoin

It is easy to get carried away with the fear of missing out. You are probably aware of Cameron and Tyler Winklevoss, who are reputed to be the world’s first bitcoin billionaires with over 100,000 coins. Or what about Barry Silbert, the owner of Grayscale Bitcoin Trust, Coinbase and Coinbase? Success stories like these often give people FOMO – or the fear of missing out – if they do not invest immediately.

However, to invest in cryptocurrency, we must first understand it. Crypto tokens are unlike any traditional asset class. And they are all different. Just because you understand bitcoin, does not mean you know how ethereum works. Our video on bitcoin fundamentals can help you understand how bitcoin prices fluctuate and how to assess trends in important bitcoin metrics.

Each currency has different underlying protocols and technology. That impacts how they trade, their volatility, and how you can value them. Some are more like stocks, others commodities, and others currencies. And each crypto token has a unique structure of supply.

We think crypto markets are a worthwhile long-term investment. The technology can capture market share on some existing markets like payments and stock trading while creating new markets like valuable scarce digital assets.

Buying the Dip

Your exposure to bitcoin needs to be appropriately sized so that you can survive 50% to 80% drawdowns. Drawdowns provide good entry levels for exposure, but we would not go max long in an environment of rising central bank rates and falling global growth momentum.

Top Three Tips You Need to Know Before Investing in Bitcoin

Where to Buy Bitcoin

To buy bitcoin (BTC) or any other cryptocurrency, you need access to a crypto exchange. A crypto exchange is where buyers and sellers meet to exchange money for coins, coins for other coins, and coins for money. Many options are available such as Coinbase, Binance.com, or eToro – each come with various fee structures, so research which is best for your needs.

You also need access to a crypto wallet to store bitcoin and other cryptocurrencies. Many exchanges provide these, but not all do. You can also buy bitcoin on platforms like Paypal and Robinhood.

Dollar-Cost Averaging

Cryptocurrencies can be extremely volatile. One way to cope with the volatility is to use dollar-cost averaging. Dollar-cost averaging is a strategy where you divide the total amount you want to invest across periodic purchases of the target asset. It simply means that you would invest the same number of dollars each month or quarter, regardless of market trends.

The idea is that when prices are high, you can afford less of the asset. But when prices are low, you can afford more. When the market recovers, you benefit from having bought more shares at the lower price. Please note that using this strategy will not always result in a profit or necessarily protect you from falling prices.

Diversify Your Crypto Portfolio

With the crypto landscape so volatile and diverse, managing risk in a portfolio is critical. That essentially means position sizing and diversification – as with any other kind of investment.

One of the best pieces of investment advice we have heard recently comes from Ari Paul, co-founder and CIO of Blocktower Capital, a crypto and blockchain investment firm. As Paul says,

‘Risk is only sizing. So, if you think bitcoin is too risky, you could size it at 0.1% of your portfolio or 0.001%. Too risky is never a reason not to own an asset. If something is positive expected value, risk adjusted, and relatively low correlation, you have to own it. That’s peak portfolio management 101.’

FAQs

Is now a good time to buy bitcoin?

For trading bitcoin over the next two to four weeks, we are bearish. That means we expect falling prices. However, we think bitcoin is a good long-term investment for the next one to three years and are bullish overall. That means we expect prices to rise in the long term.

When was bitcoin at its lowest?

Since the start of 2021, bitcoin was at its lowest on 18 June 2022, when the BTC price was $17,786. Of course, prior to bitcoin’s major bull run in late 2020, it was much lower – under $10,000. However, bitcoin has not reverted to these lows even amid significant drawdowns.

Can you lose your money buying BTC now?

As with all investments, the value of bitcoin can rise as well as fall. While it is unlikely that bitcoin will suffer a complete loss of value, investors must be prepared to suffer drawdowns of between 50% and 80%. We recommend small allocations and diversification of your portfolio. Never invest what you cannot afford to lose.

When to sell bitcoin?

Traditional wisdom says you should buy low and sell high. But whether you should sell bitcoin depends on your investment horizon, risk appetite and financial goals. Although some website speculate that certain days of the week are better or worse then others for selling bitcoin, we believe that any decision to buy or sell should be based on analysis of crypto fundamentals.

Appendix: What Are in the Four Indices?

Bitcoin: the OG of crypto markets deserves its own category and is in many ways the true benchmark for any other crypto market.  

Smart contract platforms: after bitcoin, the big innovation was to have blockchains that were more programmable. These could host smart contracts or decentralised applications and have allowed the emergence of the metaverse and defi. Ethereum (ETH) is the most popular version of a smart contract platform. As well as ethereum, we also include some key competitors. The constituents of this index are: Ethereum (ETH), Cardano (ADA), Avalanche (AVAX), Solana (SOL), Fantom (FTM), VeChain (VET), Terra (LUNA), EOS (EOS), and Chainlink (LINK). We also include Polkadot (DOT) which allows interoperability between blockchains and the use of smart contracts via parachains.  

Metaverse: coins associated with the creation of a virtual space/digital world on the internet using a combination of augmented reality, virtual reality, and social networks. The constituents of this index are Axie Infinity (AXS), The Sandbox (SAND), Decentraland (MANA), Enjin Coin (ENJ), Aavegotchi (GHST), Terra Virtua Kolect (TVK), Ultra (UOS), Phantasma (SOUL), RedFOX Labs (RFOX), and Gala (GALA).  

Decentralised Finance (DeFi): financial services built on top of blockchain networks with no central intermediaries. This can be a broad category, so we narrow this down to platforms that focus on lending/borrowing, yield farming, automated market making and decentralised exchange tokens. The constituents of this index are: Aave (AAVE), Compound (COMP), Uniswap (UNI), Yearn.finance (YFI), Loopring (LRC), PancakeSwap (CAKE), Maker (MKR), 1inch (1INCH), Thorchain (RUNE), and Terra (LUNA).  

Privacy Coins: coins that obscure transactions on the blockchain to maintain the anonymity of its users and their activity. The constituents of this index are Monero (XMR), Zcash (ZEC), Dash (DASH), Verge (XVG), Horizen (ZEN), Beam (BEAM), Secret (SCRT), Decred (DCR), Keep Network (KEEP), and Dusk Network (DUSK).  

Dalvir Mandara is a Quantitative Researcher at Macro Hive. Dalvir has a BSc Mathematics and Computer Science and an MSc Mathematical Finance both from the University of Birmingham. His areas of interest are in the applications of machine learning, deep learning and alternative data for predictive modelling of financial markets.

 

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

 

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)

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