By Mitch Rice
Even though the late crypto fluctuations weren’t much to rejoice over, investors still hold on to their digital assets or look to buy the dip. The high liquidity associated with digital currency makes it a good investment vehicle for short-term profits. While making a quick buck was off the table at the end of last year, things seem to have changed for the better for most of the cryptocurrencies out there. Plus, the Federal Reserve declared that interest rates would grow, meaning that Bitcoin might be a good choice for investors with short-term, two-to-four-week horizons and rich knowledge of crypto. However, some risks weigh heavily, like a possible global recession.
Bitcoin, the oldest and largest cryptocurrency, has had the second-best January in ten years, and bullish sentiment is growing. Starting in 2023 at ~16,600, its price has jumped to $24.621 at the moment of writing. More importantly, the spike isn’t limited to Bitcoin – just about every digital coin across the board is up. Several notable gainers have been:
- Meme coins
- Gaming cryptos
- Metaverse cryptos.
When asked if now’s the time to invest in Bitcoin (or any other cryptocurrency), the answer should be “probably”. Price charts reveal the past performance of a coin. However, because the fluctuations are so abrupt, you should consider more factors when deciding to invest, such as your risk tolerance, financial situation, investment experience, and objectives.
There are numerous predictions and differing expert opinions. But there are also patterns and common behaviours, so let’s dig into this subject to determine whether now’s the time to take advantage of the pullback.
Photo source: https://unsplash.com/photos/8TEpTK7363I
How to approach Bitcoin investing in 2023
What do seasoned investors do when there are such broad predictions? Well, one option can be diversification, but as opposed to traditional investment markets, this isn’t quite the same.
Typically, when BTC rises, everything goes up with it. The same happens when it’s down. Diversification changes the number of fluctuations in your portfolio, and when Bitcoin is the least volatile asset you own, you might be in for a bumpy ride.
Mixed signals for Bitcoin
Almost no one can agree on which measure or indication is ideal for projecting Bitcoin’s future path. Some long-term investors, for example, analyse the risk of the Federal Reserve tightening monetary policy or use macroeconomic numbers. Others focus on crypto metrics. Therefore, there are three main camps when it comes to BTC. On the one hand, BTC bulls think the crypto pioneer is on a space-bound rocket ship. On the other hand, there are the BTC bears who think of it as a “bull trap”. And in the middle, you’ll find the investors who hold onto Bitcoin for different reasons.
Bitcoin’s four-year cycles
If you’re crypto savvy and have invested in digital currency for a long time, you know about Bitcoin’s four-year cycle. The timing isn’t perfect, and some doubt the strength of the pattern. There’s definitely a pattern, though, and it’s historically proven. There were Bitcoin crashes in 2018 and 2014, so it shouldn’t come as a surprise that 2022 witnessed a collapse, too. However, this means that there were increases in 2019 and 2015, and if the pattern hasn’t gotten weaker over time, 2023 should follow in the footsteps and should end fruitfully.
Some analysts believe in the power of the four-cycle pattern and think this year looks like 2019. Bitcoin exploded and increased by 247% as soon as the Fed ceased tightening in 2019. While previous performance doesn’t guarantee future results, some traders feel that its success in 2019 may predict what occurs in 2023.
The four-year pattern isn’t a coincidence. Bitcoin tends to run in these cycles due to its halving, an event that happens every four years and means that the reward for BTC is cut in half. This is a policy integrated into its mining algorithm to combat inflation by ensuring scarcity. That’s been the case since the first halving in 2012. With each event, the dynamics in the market change.
A lot is on the Fed, too, so keep an eye on the monetary policy if you’re going to follow any indicator or metric. A “buy the dip” opportunity might appear again, and if you’re dollar-cost averaging, you’ll likely be prepared. This means you’ll simply stick to your long-term investment strategy instead of timing the market and stressing over any significant fluctuation. As history shows, some undervalued investments are bargains waiting to explode. Take Warren Buffet’s example.
In 2008, the US economy started to falter, and while investors were racing for the exits, Buffet, Berkshire Hathaway’s chairman and CEO, began spending. He threw a lifeline to several companies despite their plummeting stock prices. He invested in companies like Dow Chemical, Bank of America and Goldman Sachs, and made over $10B in profits when the market recovered.
Characteristics of a crypto bull market
A bull market is a rising market where cryptocurrencies appreciate, whereas a bear market is one where they depreciate. Given the volatility and fluctuations native to the crypto market, these terms refer to more extended periods of mostly upward and downward shifts. The bull market will continue as long as supply exceeds demand. After a period, the bull “needs rest”, and the market turns into a bear market.
The following attitudes and actions distinguish a bull market:
- Widespread interest in cryptocurrency among influencers, celebrities and other categories that were indifferent before
- Insertion of talks about cryptocurrency in social and mainstream media
- Growth in investor confidence in the market
- High demand despite limited supply
- Increased prices over a long period
- Overpricing of certain projects.
A “bull run” is a long period when many investors buy digital currencies and is described by the characteristics mentioned above. Investor confidence usually leads to a positive feedback loop and an extended bull run. For crypto, the price is highly impacted and driven by public confidence in an asset.
Some well-established cryptocurrencies like Bitcoin and Ethereum can make good investments. They are, however, extremely volatile, necessitating a thorough grasp of the crypto market and the technology underlying it, as well as your risk tolerance and goals.
Data and information are provided for informational purposes only, and are not intended for investment or other purposes.
