Tuesday, February 27, 2024

3 contrarian metrics crypto investors use to know when to buy Bitcoin

Shopping for low and promoting excessive is simpler stated than accomplished, particularly when emotion and risky markets are thrown into the combo. Traditionally talking, the very best offers are to be discovered when there may be “blood on the streets,” however the hazard of catching a falling knife often retains most investors planted on the sidelines.

The month of Could has been particularly difficult for crypto holders as a result of Bitcoin (BTC) dropped to a low of $26,782, and a few analysts at the moment are predicting a sub-$20,000 BTC worth within the close to future. It is instances like these when concern is operating rampant that the contrarian investor seems to be to set up positions in promising belongings earlier than the broader market comes to its senses.


Here is a have a look at a number of indicators that contrarian-minded investors can use to spot opportune moments for opening positions forward of the subsequent marketwide rally.

The Crypto Worry & Greed Index

The Crypto Worry & Greed index is a well known measure of market sentiment that the majority investors use to crowd-forecast the close to way forward for the market. If seen purely at face worth, an “excessive concern” studying, reminiscent of the present sentiment, is supposed to sign to keep out of the market and protect capital.

Crypto Worry & Greed Index. Supply: Alternate

The index can really be used as a market indicator, a degree famous by analysts on the cryptocurrency intelligence agency Jarvis Labs.

One of many largest elements that may assist the index rise is a rise in worth. Jarvis Labs backtested the thought of ​​shopping for when the index falls beneath a sure threshold after which promoting when it reaches a predetermined excessive.

For this check, an index rating of 10 was chosen for the low threshold, whereas scores of 35, 50 and 65 have been chosen as promote factors.

Worry & Greed returns for BTC. Supply: Jarvis Labs

When this technique was backtested, outcomes confirmed that the shorter time frame possibility of promoting as soon as the index surpassed 35, as represented by the yellow line within the chart above, offered the very best outcomes. This technique offered an annual common return of 14.6% and a cumulative return of 133.4%.

On Could 10, the index hit 10 and continued to register a rating of 10 or beneath on six of the 17 days that adopted, with the bottom rating of 8 occurring on Could 17.

Whereas it is potential the market will nonetheless head decrease within the close to time period, historical past signifies that each the value and the index will finally rise above their present ranges, presenting a possible funding alternative for contrarian merchants.

Whale pockets accumulation

Following Bitcoin whale wallets with a stability of 10,000 BTC or extra is one other indicator that indicators when shopping for alternatives come up.

Variety of Bitcoin addresses with a stability of at the least 10,000 BTC. Supply: Glassnode

A detailed have a look at the previous three months reveals that whereas the market has been promoting off, the variety of wallets holding at the least 10,000 BTC has been climbing.

Variety of Bitcoin addresses with a stability of at the least 10,000 BTC. Supply: Glassnode

The variety of whale wallets of this dimension is now at its highest degree since February 2021, when Bitcoin was buying and selling above $57,000, and these wallets have been promoting into power close to the market high.

Whereas many analysts on Crypto Twitter are calling for an additional 30-plus p.c drop within the worth of BTC, whale wallets are betting on a constructive future.

Associated: 3 explanation why Bitcoin is regaining its crypto market dominance

Some merchants buy when Bitcoin worth drops beneath its price of manufacturing

One other metric that may present perception into when and the place to buy is Bitcoin’s common mining price, which is the amount of cash it prices a miner to mine 1 BTC.

Bitcoin common mining price. Supply: MacroMicro

As seen on the chart above, the value of Bitcoin has traded at or above the price of manufacturing for a majority of the time since 2017, indicating that the metric is an efficient indicator of when generational buying alternatives come up.

A better have a look at the present studying reveals that the typical mining price sits at $27,644, round $2,000 beneath the place BTC is buying and selling on the time of writing.

Bitcoin common mining price. Supply: MacroMicro

Additional evaluation reveals that in previous situations the place the market worth of BTC fell beneath the typical mining price, it tended to keep inside 10% of the associated fee to mine and usually managed to regain parity inside a few months.

Bitcoin mining issue additionally just lately hit a brand new all-time excessive, and the market continues to see an uptrend as extra industrial-sized mining operations come on-line. This implies it is unlikely that the typical price to mine will see a big decline anytime quickly.

Taken all collectively, the present price to mine as in contrast with the market worth of BTC presents a compelling case for the contrarian investor that the widespread concern dominating the market presents a possibility to be grasping when others are fearful.

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The views and opinions expressed listed here are solely these of the writer and don’t essentially mirror the views of Cointelegraph.com. Each funding and buying and selling transfer includes danger, it is best to conduct your individual analysis when making a call.