Bitcoin’s roller-coaster ride is headed up once again — the cryptocurrency is on an upward swing once more, reaching the $7,000 mark this week.
While recent history suggests that bitcoin — the world’s largest digital currency by market capitalization — won’t likely hold this level long, the ups and downs in cryptocurrencies are giving investors valuable technical data to utilize in their trading strategies, says Jack Tatar, managing partner at Doyle Capital Management, a Pennington, New Jersey-based venture fund investing in cryptocurrency companies.
[See: 7 of the Best Cryptocurrencies to Buy.]
Bitcoin has experienced a “tough trading environment,” but will bounce back and reach another support level, he says.
“We’re starting to see more people involved in it and getting more data,” says Tatar, who is bullish on the future of the virtual coin. “There are more efficiencies in the market and there is starting to be more data to track on a technical basis.”
Since December, bitcoin, which is lightly regulated, has given investors a show, hitting a high of $20,000 before dipping to $8,500 by mid-March and ultimately reaching lows in the $6,000 range, wiping out billions of dollars in market cap because of extreme volatility, hacking and orders from regulators. Large losses are not unusual for bitcoin and other digital currencies.
Stock investors sometimes rely on the 200-day moving average, a long-term momentum indicator, and some crypto traders said utilizing this benchmark is also useful in trading bitcoin.
“The [July] rally in bitcoin did in fact end just shy of its 200 [daily moving average] of around $7,300,” says Mati Greenspan, a senior market analyst at eToro, a Tel Aviv-based social investment network. “Technical analysis plays a huge part in cryptocurrency analysis. Not only did the price fail to get an upside breach but you can see that both times it had tried for several days, testing the barrier, before finally retreating.”
The 200-day moving average also played a large role in bitcoin’s rally in 2017, especially in the beginning of the year when it provided the market with support, he says.
When bitcoin reaches a new high, investors should not focus on short-term gains and continue to allocate the coin to their portfolio, Greenspan says.
[See: The 10 Most Valuable Cryptocurrencies in the World.]
“Many bitcoin traders are looking more long-term,” he says. “Even when the price reaches $8,000, many people will see it as cheap in relation to the all-time highs of $20,000.”
Strategies such as dollar-cost averaging and buying the dips, which are commonly used by stock investors, have also been used by many crypto investors because they are beneficial, Greenspan says.
The price of bitcoin is often severely volatile, fluctuating hundreds of dollars in either direction in a single day. The rapid rises and falls in bitcoin are not unusual and instead of being fearful of it, investors should expect it.
“Stocks are pretty volatile, but bitcoin is way more volatile,” Greenspan says. “Things have been pretty calm in the last few months, but when it is moving it’s rather normal to see the price move by 20 percent in a single day.”
The price of bitcoin has been driven largely by retail investors who “see the value in this new form of money,” Greenspan says. “As we speak, larger institutional players are starting to show interest and moving in on the space.”
Bitcoin has been trading within a range as it hit $8,000, then bounced back to $6,000, Tatar says.
“When it drops below $6,000 is when people should really worry,” says Tatar, who believes that investors should allocate 5 to 15 percent of their portfolio in cryptocurrency assets such as bitcoin, Ethereum and other digital coins. “That’s when we have an issue.”
Bitcoin has the potential to hit the higher range and break out over $8,000, he says.
“At that point, we might see more of a bullish trend of creating $8,000 as the support level,” Tatar says. “If you get a breakout above a certain level of $8,000, there is the potential for a new support level and $8,000 can be the old resistance.”
[Read: The Best Bitcoin Wallet for 2018.]
The gains and declines in bitcoin should be viewed as a percentage instead of focusing on a certain dollar amount. Before they start trading, investors need to determine how much of a loss they are willing to accept before they sell.
“Bitcoin can see 10 percent to 50 percent drops and you need to understand that going in,” he says. “If you get in and are not willing to take those risks for a potential reward, that is a personal decision.”
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How to Trade Bitcoin When the Price Rises originally appeared on usnews.com
