Investing at prices near support levels, reviewing holdings imperative while investing in crypto assets
When Satoshi Nakamoto introduced Bitcoin (BTC) as a cryptocurrency based on blockchain technology in 2009, scarcely did the world believe that 13 years on, it would be amongst the best-performing crypto asset, clocking multifold gain from the lows of April 2013 to its peak in April 2021. Ever since touching its All-Time High (ATH) price of $64,941 on 14th April 2021, BTC has been experiencing turbulence in prices primarily due to two unrelated events that have dampened investor sentiments. However, it will be prudent for investors to remain calm and draw inspiration from BTC’s past performance and behaviour to plan their investments ahead.
Looking back at BTC’s journey gives a sense of how it has fared in times of scepticism and moved smartly on the back of increasing global acceptance amongst investors and crypto-developer communities. Celebrity investors-cum-entrepreneurs have openly endorsed crypto assets like BTC both in terms of online advocacy as well as financial investments. Concerns regarding the legitimacy of crypto assets have long been answered with the increasing adoption of blockchain technology, especially in the financial and banking space. In fact, with more projects being developed using blockchain technology and considering that cryptocurrencies are basically assets representing them, the outlook for crypto assets in general and BTC, in particular, continue to remain bright.
Additionally, we have noted an important statistic in BTC’s behaviour that should throw light on the question troubling almost every crypto investor; will BTC bounce back and resume its upward trajectory or are more demanding times ahead? This question is especially relevant for new investors who are probably dazzled by the recent price drop and ensuing volatility. Between 2011 and 2021, BTC’s average price pull-back from its peak has been close to 50 per cent before resuming its journey towards a new ATH price. If we were to extend the same behaviour to current times, BTC has corrected by 54 per cent from its ATH on 14th April to nearly $30,000 on Wednesday, 19th May. Subsequently, it has already recouped 30 per cent of its losses on the back of renewed support from marquee celebrity investors like Elon Musk, who has clarified that Tesla continues to hold onto its Bitcoin investment. This has allayed investor fears and has helped BTC move smartly towards an upward trend.
Concerns regarding China’s recent imposition of certain restrictions on crypto assets seems to be aimed more at protecting their Chinese Yuan than impacting crypto assets. It is worthy of mentioning that most of the activities from China have already shifted overseas since 2017. Since then, the Chinese cryptocurrency market has matured vastly, with heavy-weight institutional investors taking interests in crypto assets like BTC. The shift is due to the dramatic technological transformation in blockchain technology expected to bring into most industries. It is also important to note here that Chinese investors are free to continue their investments in cryptocurrencies using other fiat money like the US Dollar.
Considering the overall successful journey of BTC, investors should stay put and use a cost-averaging approach with fixed investment amounts at regular time intervals. This will allow investors to ride out the volatility, which long-term investors can effectively employ. Investments in crypto assets should always be driven by an individual’s financial situation & goals. A long-term approach is advisable for those looking to diversify and grow their portfolio rather than being perturbed by short-term volatility. Thorough research and making investments at prices near support levels with a periodical review of holdings are imperative while investing in crypto assets.
To sum up, BTC has historically demonstrated both high volatility and higher returns for those willing to hold onto it basis the promise it holds as an alternate asset class. For new investors planning to make fresh position, it would be apt to invoke the old saying ‘If the water is too clean, you will not catch any fish’. This will best represent how they should adopt an opportunistic approach to make the most of the current depressed prices of BTC and other established crypto assets.
The author is CEO & Co-Founder of CoinDCX
DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.