Timing the Crypto Market
WHEN TO BUY AND WHEN TO SELL | WHICH INVESTOR TYPE ARE YOU?
I know this might sound strange for some of the readers, as you probably heard many times on YouTube that “Time in the market beats Timing the market”. Well I don’t agree, I was showing you few simple ways to improve your entries in the market over the past few months, on top of the BUY ZONE indicators. Of course there will always be new investors coming to crypto market that will miss this year’s big opportunity and will face the same dilemma or missed previous Bear markets.
I will outline here best times for entry and exists from the crypto market based on Bitcoin’s halving cycles that so far have been holding up very well despite what you might hear from some crypto influencers, until proven otherwise current 4 year cycles are repeating. I won’t be explaining the halving cycle itself here as that is something I’ve planned to write up separately for a while now but that requires some more time and it is not that crucial for you to know to be able to follow these simple timelines as will show you.
Why Time in the Market isn’t better?
I guess this is the mantra repeated by those that have invested at least 4 years ago and most of them bought at the tops of 2017 Bull cycle, suffering 80%+ losses in the following crypto winter. Now those that HODL’ed only had 80%+ in unrealized losses and if they bought Bitcoin, Ethereum and only a handful of altcoins they were able to ride out the storm and come out on top in 2021, many others though sold in 2018 and either never came back to invest in digital assets or repeated same mistakes, by buying only when it got popular again early 2021.
Even if they bought BTC around 2017 tops lets say for 17k and never sold (and most HODLers never sell) they are barely in profit right now, so why they claim its better to just buy and forget? Ok it might be better for your mental health if you buy and don’t pay attention to the market, but you need to have some goal, usually growing your fund as I doubt there are crypto collector who do it just to show off in 10 years :P
I will not be showing examples of what your portfolio would look like if you keep buying but never sell as it makes little sense since all your profits/losses are unrealized until you actually sell, but bare in mind there is no 100% guarantee Bitcoin will cost 1,000,000$ one day, so if you do not take profits along the way you might end up where you started 10 years later.
I’ll show you the most common strategy used by HODL’ers so those that put more weight on time in the market, Dollar cost averaging in an asset on the way down and DCA out on the way up (though many buy on the way up too if price isn’t above last ATH)
For this I’ll assume that INVESTOR A (HODL’er) got interested in Bitcoin in late 2017 as most people do during heights of Bull cycles. This will most likely reflect most casual buyers. As the goal for INVESTOR A is to grow their Bitcoin stack over time, with minimum profit taking, I will assume they are smart enough and only take profits when price hit a new ATH (apart from 2017 where they were new to the market so would not know better as most beginners just BUY) and all Buys and Sells happen on a monthly basis. Set amount in USD in and out at 2% of BTC holdings in increments of 2% with each consecutive SELL if price is higher than last SELL.
During the run up to 2021 Bull run and first Sells after Bitcoin made new ATH, INVESTOR A would have made 41 monthly BUYS (spending 41k$ since Jun 2017) at an average price of 8,012$ and after several months in 2021 where they would sell a small portion of their holdings they would have taken out all the initially spent amount plus some profit. Hence BUY orders after some cash was freed was increased to 2,000$ per buy for the remainder of current Bear market. If you are this type of investor, be prepared to be able to just buy for another 20-30months and plan your spending accordingly.
Why Timing the Market is Better?
As crypto market moves alongside Bitcoin’s halving cycle with little extra work we can determine best times to buy and sell to greatly improve your average buy price and overal investment growth. Concentrating your BUYs only during Bear market and within the optimal BUY ZONE, then aiming to sell as much as possible during the bull cycle and SELL ZONE can grow your investment in a much more efficient way than INVESTOR A.
BUY ZONE - as identified by a group of TA and on-chain metrics can give you at least 120 days of likely the lowest prices before next bull run
SELL ZONE - can be timed by “distance” from Bitcoin halving and previous cycle’s ATH (I’ll expand on that in the “Halving cycles” separate episode) that gives us at least 8 months of general bull cycle phase where taking profits is the best idea
Based on the above INVESTOR B would not enter the market in June 2017 as that was already within the SELL ZONE, but wait for BUY ZONE that started Dec 2018. That means he/she would just save their 1000$ allocations from last 18 months until the right time to spend it comes. Considering we assume that average best time to buy will last 120 days, on top of the saved 18k you would add 5k for the coming months during BUY ZONE. That is a reasonable way to do this not putting extra strain on your budge but of course if you have free cash at this moment as from TA point of view we are in BUY ZONE from 27th of June 2022 (although its not optimal yet as on-chain data bit lagging) you can safely assume buying for next 18 weeks.
With that in mind, our INVESTOR B has 25k available to invest during that 18 weeks period and then on a monthly basis if price drops to it’s average buy price they can spend any accumulated cash in a controlled manner, while waiting for the next bull cycle.
Here is the result of such concentrated Buy action:
That resulted in 25x weekly Buys and an average price for Bitcoin of 3,923$, spending 40% less to get a bit more Bitcoin than INVESTOR A who just kept on buying monthly.
As months go by outside of BUY ZONE, INVESTOR B continues to allocate 1000$ a month towards their Bitcoin fund, but only adding to a Limit order set at or around their current cost basis in case any black swan event causes the price to come back there. No guarantee it will happen, but chasing the market going up fast is not a good idea. We know we had such black swan event with Covid in 2020, while probably not the best idea to have 100% of your fund on that limit order you could keep 1/3 of your funds in the LO and if matched, set same amount for next week. In our case INVESTOR B would have 10 months to save before March 2020 where BTC would hit that 3,923$ LO.
We know well in advance that our SELL ZONE will start from Feb 2021 and last till Nov 2021 giving us 10 months (around 42 weeks) of best prices and aiming to liquidate at least 80% of BTC holdings in preparation for the next BUY ZONE. INVESTOR B also does not want to spend too much time checking charts or just isn’t good at reading them, so to have a better chance to sell at high prices decides to do it bi-weekly, knowing they have 42 weeks window, they can split current BTC holdings that sit at 8.03 into 21 equal parts, executing the sale only when new price is higher than previous. Any times that price is lower they save that BTC allocation and add to next bi-weekly, that way guaranteeing eventually if prices continue to rise during bull run of liquidating most of the holdings.
You could say my “sell timing” is back fitted, but the fact is from BUY ZONE start to top in 2017 and 2021 respectively we had same amount of days. Same calculations from Halving date give very close lasting Bull cycles for both periods.
The difference in cash available to spend during current BUY ZONE between INVESTORS A & B is huge, especially considering that B spent 25% less and has 4x more free capital to re-invest now than A (although A is still holding 4.5 BTC, but the total value of fund is still lower than B’s). That does not count the 24h months that B had to save 1000$ a month to make it a round 500,000$ fund to spend on BTC purchases or anything else they have in their investment plan.
Conclusions and Next Steps
If you feel comfortable with selling your holdings each cycle (and that can be applied to any other digital asset) then you should follow similar path to INVESTOR B, especially that we are in a technical BUY ZONE now.
Focus on next 18 weeks, spreading your purchases evenly (I assume you should know your overall crypto allocation, remember to spend what you are prepared to have tide up for at least 3 years) and then keep saving for future crypto purchases on your regular basis, adjusting your Limit Buy Orders accordingly in case price does come back to your average cost basis
Current estimation of when we will have our next SELL ZONE (bull cycle) for Investor B types is Sept 2024 to June 2025, so patience is key and not deviating from the plan. Of course you could aim to sell only 70% of your holdings and there is no 100% guarantee that this pattern will repeat exactly to the letter, but gives you a very good chance of selling in a profit and we know what happened to most retail investors or even those big money ones during the last few months, that did not take profits and had heavy leverage through loans etc. riding into Bear market.
If you are Investor A and just wish to continue DCA on a monthly basis I still recommend taking some profits as outlined in the example, rather than just adding to your positions and never taking profits hoping your asset will do 50x+ eventually. How can you be sure if you will sell then? Buying and Selling teaches discipline and makes you less susceptible to FOMO, as the cycle repeats we will have new retail investors coming in once Bitcoin is back above 60k-100k, they will be the ones paying out your profits, don’t be them.
If you have any questions on the above, feel free to drop a comment or reach out to me on Twitter (@gigisulivan) and as always if you have learned anything useful today, please share with others.