When to buy and sell bitcoin? It is “exactly the opposite” of actions: DataTrek

Bitcoin was trading at over $ 60,000 in April, having taken an incredible run from $ 11,000 in October. But after a tough first half of May, it was around $ 33,000 as the crypto buzz died down.

Bitcoin (BTC) popularity cycles are a hallmark of the digital asset, at least so far, and despite its novelty, it is old enough (12 years) that some patterns have emerged.

While there is no guarantee that what follows will be no different, Nicholas Colas, hedge fund veteran and DataTrek co-founder, pointed out an interesting pattern with bitcoin that is different from what we usually see in the actions.

Bitcoin is best bought when it is ‘boring’ and best sold when it is ‘going up sharply and we feel like geniuses to own / recommend it,’ Colas wrote.

“This is the classic ‘instead of shouting’ you should sell business,” he added.

Colas recognizes the crowd of HODL believers and the fact that for them it has been good (so far). But that “even those hardy souls, however, might benefit from considering more auspicious times to lighten or add positions.”

Using a continuum between “boring” and “spicy”, Colas looked at the standard deviation of daily bitcoin prices over the past 100 days and found that buying when volatility is high generally does not perform well. Buying when volatility was low, on the other hand, yielded better future returns. With the exception of four cases after huge rallies, buying when volatility is low and selling when volatility is high has worked well.

“It should be noted that this trend is the exact opposite of what we see in equities,” added Colas. Also, as a stock’s market capitalization increases, volatility usually decreases. This is not the case with [bitcoin]. “

It is important to note that this analysis is more technical than psychological in how people react to the asset and has nothing to do with fundamentals or investment theses. While this is a useful takeaway, it has some obvious limitations: it can’t tell you how long you necessarily need to hold after buying or what the average return might be. Instead, it’s more of a directional indicator – if you think, like Colas, that this pattern is common in digital currencies, you could take its advice and sell when volatility starts to rise again.

So what does this mean for bitcoin volatility right now if the pattern observed by Colas continues? The volatility of the last 100 days is always above 3.0%, which means that it is not boring enough to “create a reasonable entry point for a longer term trade or investment that does not generate short-term volatility “.

“The good news about the historic record,” continued Colas, “is that this day will come.”

Ethan Wolff Mann is a writer at Yahoo Finance who focuses on consumer issues, personal finance, retail, airlines, and more. Follow him on twitter @ewolffmann.

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