3 Indicators Inverse Crypto Investors Use to Know When to Buy Bitcoin

Buying low and selling high is easier said than done, especially when emotions are mixed with volatile markets. Historically, the best deals are found when there is “blood on the street,” but the danger of catching a falling knife usually keeps most investors on the sidelines.

May was especially challenging for cryptocurrency holders as Bitcoin (BTC)bitcoin) fell to a low of $26,782, with some analysts now predicting BTC prices below $20,000 in the near future. It’s at times like these that fear runs rampant when contrarians look to build positions in promising assets before the broader market returns to sanity.

Here are a few indicators that contrarian investors can use to spot opportunities to open positions ahead of the next market rally.

Crypto Fear and Greed Index

This Crypto Fear and Greed Index is a well-known market sentiment indicator that is used by most investors to predict the near-term outlook of the market. If purely on the surface, the interpretation of “extreme fear”, such as current moodIntended to show staying away from the market and preserving capital.

Crypto Fear and Greed Index.Source: Alternative

In fact, the index can be used as a market indicator, a point famous Provided by analysts at cryptocurrency intelligence firm Jarvis Labs.

One of the biggest factors that can help the index rise is price increases. Jarvis Labs backtested the idea of ​​buying when the index fell below a certain threshold and then selling when it reached a predetermined high.

In this test, 10 points were chosen as the low threshold, while 35, 50 and 65 points were chosen as selling points.

Fear and greed return to BTC.Source: Jarvis Labs

When back-testing this method, it turned out that the shorter time frame option (shown by the yellow line in the chart above), which sold once the index crossed 35, provided the best results. This approach provided an average annual return of 14.6% and a cumulative return of 133.4%.

On May 10, the index reached 10 and continued to record scores of 10 or below on 6 of the following 17 days, with the lowest score of 8 occurring on May 17.

While markets are still likely to move lower in the short term, history suggests that both prices and indices will eventually rise above current levels, presenting a potential investment opportunity for contrarian traders.

Whale wallet accumulation

The following Bitcoin whale wallet A balance of 10,000 BTC or more is another indicator that a buying opportunity has arisen.

The number of Bitcoin addresses with a balance of at least 10,000 BTC. Source: Glassnode

A closer look at the past three months shows that while the market has been selling off, the number of wallets holding at least 10,000 BTC has been climbing.

The number of Bitcoin addresses with a balance of at least 10,000 BTC. Source: Glassnode

The number of whale wallets of this size is now at its highest level since February 2021, when Bitcoin was trading above $57,000, and these wallets sold well near the top of the market.

While many analysts on Crypto Twitter are calling for another 30%+ drop in BTC price, whale wallets are betting on a positive future.

related: 3 reasons why Bitcoin is regaining its dominance in the crypto market

Some traders buy bitcoin when it is below its cost of production

Another metric that provides insight into when and where to buy is the average Bitcoin mining cost, which is the amount it takes a miner to mine 1 BTC.

Average Bitcoin mining cost.Source: Macro Micro

As the chart above shows, Bitcoin’s price has been at or above the cost of production for most of 2017, suggesting that the metric is a good indicator of when generational buying opportunities arise.

A closer look at the current readings shows that the average mining cost is $27,644, which is about $2,000 less than BTC is trading at at the time of writing.

Average Bitcoin mining cost.Source: Macro Micro

Further analysis shows that in the past where the market price of BTC was lower than the average mining cost, it tends to stay within 10% of the mining cost and usually returns to parity within a few months.

Bitcoin mining difficulty recently hit an all-time high, the market continues to show an upward trend as more industrial-scale mining operations come online. This means that the average cost of mining is unlikely to drop significantly in the short term.

All in all, compared to the market price of BTC, current mining costs make a compelling case for contrarian investors that the widespread fear that dominates the market provides an opportunity to be greedy when others are fearful.

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The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk and you should do your own research when making a decision.