When Lambo? Do I Buy Bitcoin When Its Up Or Down?

Despite the gratuitous title, its a good question!

Good traders know that it’s not where the price is, but how much confidence you have in where its going. However, new investors in Bitcoin wrestle with a difficult decision about if or when to buy … and its not an easy one.

Event today, our daily alerts told us today that Bitcoin is at about 93% of its monthly high. This got us asking: Does Bitcoin perform better when its close to its recent highs or when it closer to its recent lows?

There are some who will say that buying near the recent highs is a good example of “breaking out”, or “having more momentum” — and that can be true in the right market conditions. And of course everyone has heard the adage: “Buy low, sell high” which is not often easy to do.

However, we decided to put emotion aside and take a look at the numbers.

To do this, we’ll put to work one of our often used charts, the percentile returns chart. This chart simply shows the range of returns experienced over time, divided into different percentile bands. It gives us a sense of how likely returns are to increase or decrease after a particular event occurs.

In this case, the events we are interested in is when the price of bitcoin is within 10% of its 4-week high and when it is within 10% of its 4-week low.

Figure 1. Bitcoin Returns Price Within 10% of 4-Week High / 4-Week Low

With the recent rise over the last few years in Bitcoin, its not surprising that in both scenarios is it all up, up, up. But what is more interesting to us is the slight differences between the two charts.

First, note the tighter confidence around the buying near the low (second chart) compared to buying near the high (first chart). Returns on buying near the low have been more consistent and predictable — especially within the first few days.

Second, note the higher confidence of returns above zero. Buying at near-term highs does have a higher return in general, but its less consistent and comes with some downside risk. If you’re timing is wrong, then you could be one of those looking to lose 10% or more.

Here is an animated version to make it a bit easier to compare.

Figure 2. Comparison of Buying BTC within 10% of 4-Week High vs. Low

The story continues if you look at 5% as well. Though the median return is the same, near term results are drastically improved and less likely to experience downside risk.

Figure 3. Comparison of Buying BTC within 10% of 4-Week High vs. Low

For investors who look to control risk, these findings can be illuminating. Sure you may miss out on some potential upside by not riding to Lamboville in the sunset. But if you’re buying knowing that 90% of the time, after 2 weeks you’ll be in the green, that’s more important.

Figure 4. Riding to Lamboville in the Sunset

Investing in crypto comes with risks. At Gatsiva, we are not investment advisors. We are experts in statistical methods and evolutionary algorithms. We like educating crypto investors using statistics to avoid the hype and help guide to better decision making.

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