- Many investors are still hesitant about Bitcoin ending the bearish period, despite Bitcoin’s recent consolidation price action and market fundamentals looking strong
- How will you know if it’s the time to buy Bitcoin? In this article we’ll present signs that may indicate on an end to the current bear market.
- Timing the market is almost impossible – meet the DCA option.
Most experienced traders know that markets are primarily driven by emotions, and the key to cracking them is understanding the market psychology as well as being able to interpret technical analysis and chart fundamentals.
Despite this public knowledge, many of us still fall into the same traps that cause us to either lose money or miss out on significant investment opportunities. This is not just limited to Bitcoin and crypto.
The current sentiment around the crypto markets indicates that the majority may be falling for yet another emotionally driven trap.
Ironically, people rushed to buy Bitcoin when it first hit $10,000 and $15,000 in late 2017, yet now when the price is around the mid $3K range (discount of over 80% from the all-time high), there is steady progress and strong market fundamentals, buyers seem to be more hesitant than ever about entering the market and buying Bitcoin.
Perhaps it’s the fear of being yet another victim of the market crashes we’ve seen during the 2018 bear market, or the constant negative messaging led by the mainstream media insisting that ‘Bitcoin is dead’ or a ‘pyramid scheme’.
Either way, it seems that most traders and investors stay out of the game altogether for all the wrong reasons. If public sentiment was the best indicator for making trading decisions, then everybody would be rich.
We are not saying that we have seen the bottom of the current bear market and now is the time to buy Bitcoin, or that 2019 is the year for Bitcoin like 2017 was. However, we will shine some light on what many believe could be the signs that a reversal is coming.
The psychology of the market: Who are you?
Based on the writer’s opinion, today’s crypto trader can be summed up into five categories;
- Perma-Bulls or HODLers (always bullish for emotional reasons)
- Perma-Bears (bearish for emotional reasons)
- Day/swing traders
- Trend followers (the FOMO crowd)
- Long-term traders focus on T.A and market fundamentals
Although no one can ever be right all the time, category number five seems like the best category to fall into if you want to succeed in the crypto markets or any other market.
Regardless of the eventual outcome, it’s still best to pay attention to the fundamentals of the market as opposed to the sentiments shared by the mainstream media, crypto influencers or the so-called experts on social media platforms. Unless you plan on being a HODLer, following public sentiment (FOMOing) without understanding market fundamentals will only ensure that if you lose money, you will not understand why and you won’t know how to learn from your mistakes.
Market cycles: Comparing the 2014 and 2018 BTC charts
We’ve discussed many times how the 2018/2019 crypto markets are playing out almost exactly as the markets did in 2014/2015.
After a year’s worth of downturn, we saw a slow and steady consolidation in 2015 that didn’t run into a bull market until early 2016.
Generally, the more similar a chart pattern looks to the previous one over a broad timeline, of several years, the more that pattern is worth paying attention to, as it could indicate that history is repeating itself. This is one of the basics that technical analysis relies on.
Nobody can be sure that 2019 will not lead to new lows for Bitcoin, the BTC chart has looked like a falling knife since January 2018.
If we continue the comparison between the 2014 and 2018 cycle, we can see that the cycle happens every four years, and when looking at 2015, we can see that it was a year of consolidation or accumulation. The smart money bought Bitcoin that year.
The year of 2016 officially marked the beginning of one of the best bull markets an asset has ever had. Some fundamental events are related here: the world economy instability – in India specifically, Trump won the elections, and there was also the Bitcoin halving event that takes place every four years. You guessed right, the next halving is expected in mid-2020.
The Technical: Looking for a Golden Cross
Speaking about technical signs, it is believed that a Death Cross is the strongest sign of turning from a bull market to a bear market.
A death cross happens when the 50-day moving average, which is a line formed from the previous 50-days closing prices, crosses down the 200-day moving average line.
The opposite is called a Golden Cross, and it happens when the 50-day moving average line crosses above the 200-day moving average. One more condition is that the price of the asset is below the 200-day moving average line.
As can be seen on the following chart, a Death Cross took place around April 2018, whereas Bitcoin was trading around $10,000. The bulls will be waiting until a Golden Cross takes place. In my opinion, if we’ve seen the bottom of the current market cycle, this could take place during the third quarter of 2019. However, do not try to guess, wait for the technical evidence to take place.
Update: April 2019 Golden Cross
It happened a lot quicker than the analysts predicted, but during the second part of April 2019, a Golden Cross took place as can be seen on the Bitcoin’s daily chart below.
This is definitely a sign for the bulls, however, to those who like 2014 and 2018 comparisons (as mentioned above), the bull-run of 2015 saw a false break-out before going through the real Golden Cross. It will be interesting to see if this will repeat itself in the current market cycle.
The HODLers approach: Average down using DCA
DCA, or dollar cost average, is a method of accumulating an asset over time. In simple words, you decide the total sum you want to but Bitcoin for, in how much time, and basically you divide that into small purchases and buy a certain amount every X days/weeks/months.
This method is perfect for cryptocurrencies since it eliminates the volatility of the asset and averages down the price over time.
Instead of guessing where the bottom is, you can start accumulating. If the price drops – you will average down. If the price rises – you’ll be happy. So you’ll OK either way.