Bitcoin is up something like 30% in two weeks and you can already see FOMO making a comeback. So much for the Bitcoin is dead narrative.
But are you buying this rally or not? Here are some reasons to buy and some reasons to wait on the sideline.
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Buy or pass
Remember that there is no right or wrong answer when you ask the question is it time to buy? As an investor you want to buy when the ratio of the reward to the risk on a trade is skewed in your favor with some good margin of error. But of course you can only estimate this reward to risk ratio at any point in time. So here are some things to take in consideration for your analysis.
Reasons to buy
If you are a systematic trend trader you have to buy this breakout. The essence of this strategy is that you strike out on most of your trade with some small losses. But from time to time you catch a big wave that makes up for all your losses and some more.
This is not specific to Bitcoin, it works on all “trending” assets. But here is the profile of the trades you would have put on BTC following a 200 days moving average trend following strategy. Each point corresponds to a trade. The return (expressed as a growth multiplier here) of each trade is read on the horizontal axis.
As you can see, most of the trades go nowhere. But a few big trends drive the expected return very high.
Now for the 200 days moving average strategy you don’t get to do a lot of trades every year. So you cannot skip any opportunity. When the signal (BTC crossing above its 200 days moving average) is flashing green. You never know in advance if this is going to be the big one.
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