Buy on the Dip: Should You Load Up on Bitcoin in May?
Following a mild correction on Tuesday, bitcoin (BTC) was back near $5,850 on most major exchanges, a sign that traders were already looking past the Binance security breach that resulted in the loss of 7,000 BTC. Bitcoin entered the month of May mildly bullish, according to the SFOX Multi-Factor Market Index, and may have actually exceeded expectations through the first week of the month.
Outlook: Mildly Bullish
Earlier this week, the team at SFOX released the monthly crypto volatility report, which identified key trends influencing the price of bitcoin and large-cap altcoins in April. The SFOX Multi-Factor Market Index remained mildly bullish heading into May as bitcoin continued to exert a strong gravitational pull on the broader cryptocurrency market.
The ‘mildly bullish’ outlook is similar to the one given at the end of March, which was just before bitcoin exploded higher. The leading digital currency gained more than 30% in April, helping to engineer a more sustainable recovery throughout the market. Even a slight uptick from current levels would lead bitcoin past $6,000 for the first time since November. It would also give BTC a four-month winning streak for the first time in years.
Bitcoin’s resurgence has come at the expense of altcoins and tokens, whose share of the overall market has dwindled rapidly over the past two months. Bitcoin now accounts for more than 56% of the overall market cap and its gains have picked up where the likes of Litecoin (LTC), bitcoin cash (BCH) and Binance Coin (BNB) left off. Before April, these coins were the biggest movers and shakers.
The SFOX report also tempered concerns that the three-month rally in bitcoin was due to a fear of missing out, or FOMO. While it’s impossible to separate FOMO from dominant market cycles, SFOX says “the data interpreted by our index imply that crypto is continuing on a sustained positive trajectory, independent of more transient surges in market interest.” This means that market hype hasn’t been the primary catalyst behind the rally.
This view is consistent with Hacked’s reporting over the past three months, which identified a broad shift in the market as early as January. Important indicators like network activity, trade volumes and institutional trading all suggested that the market had already bottomed. We are now more assertive in declaring the end of ‘crypto winter.’
SFOX also shared this view in its latest report, where it argued that “the fundamentals-driven bullish signals we’ve seen — price momentum, infrastructure development, institutional interest, etc. — have been present for several months.”
Buy on the Dip
Bitcoin’s sustained climb has been accompanied by relentless and predictable bargain-hunting. As the following chart illustrates, traders have been buying-on-the-dip since late February, a trend that has only intensified in recent months.
If traders are buying BTC on the dip, it means they are confident the price trajectory is higher. With the exception of Bitfinex, most major exchanges are quoting bitcoin at a price of around $5,840-$5,845 on Wednesday. They printed highs north of $5,900 earlier in the week.
Earlier this year, Hacked reported that $5,500 would likely serve as a long-term resistance test for the bulls. If that level has transformed into a key support, there’s reason to believe that the current uptrend will continue. Market participants should carefully monitor this level for cues.
At the same time, traders shouldn’t get too ahead of themselves and remember that large, often violent, price swings are almost certain to occur. These swings will expose the speculators and over-leveraged traders who aren’t able to ride out the sudden price collapse. For long-term holders, such movements simply don’t matter.
We will leave you with the following reminder from cryptocurrency trader Bob Loukas:
“Bitcoin will go up and down in price, sometimes violently!
If you’re in this for the long haul, you DO NOT CARE!
You do not try and time the short-term market because a big bull market will out-smart you. Take your position (I’ve been saying this for 5 months) and get into a strong HODL position. Stop trying to save $500 per coin because it could cost you $5,000 paying at a higher price.”
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock. Chart via TradingView.com.