The optimist believes that the ideal time to buy is now. The skeptic hesitates and decides to wait. The pessimist, on the other hand, considers that it is best not to buy. Here the most important variable is expectation. I mean our theory of the future. The optimist sees a better future. The skeptic has not yet found clarity. And the pessimist believes that everything will go down the drain. This industry abuses predictions to arouse enthusiasm. AND sells us the idea that it is always a good time to buy. That’s like asking a baker about the ideal dinner. Obviously bread. When is a good time to buy? Well, it all depends.
The first thing we need to do is define our goal. Here the goal is not the future of Bitcoin. It is not world currency reform. It is not a libertarian utopia. Here the objective is the financial growth of the investor. From there, we build a strategy. So, we must always start with the inverter. The investor must be placed in the center. However, Therefore, a detailed study is required for personal finances. Expenses, income, charges, debts, insurance, responsibilities and available capital. The ideal investor has few expenses, few debts, few responsibilities, a lot of income and a lot of capital. The goal in this case is to get as close as possible to this ideal. How do you do that? Okay, putting the house in order. Putting order and commitment to the thing.
Now that we have a capital we can go to the next step. When to buy? It is best to buy low to sell high. We must remember that all this is done to maintain a lifestyle. It is not about accumulating for the sake of accumulating. That is greed. We invest for financial freedom. This means: Living according to our desires. And living according to our desires is un concrete fact that requires the ability to acquire goods and services. Food, housing, transportation, services, health, training, etc. Living requires logistics and this logistics is financed with money. In this context, the price of Bitcoin matters. It matters a lot. A Bitcoin at $10 is not the same as a Bitcoin at $100,000. With $10 we buy a lunch. With $100 thousand we buy more than one lunch.
So the basic idea is to buy low to sell high. The danger here is buying too late and selling too early. What is Bitcoin? It is a code in a decentralized network of computers. That code represents an exchange rate. People buy this code for various reasons: speculation, ideology, privacy, evasion, or convenience. Words less, words more, Bitcoin is a social pact. That implies that its price is related to the number of participants.
Now, there are three types of participants: The strong, the weak and the potential. The strong participant buys and waits with an iron will. The weak participant buys, but is easily spooked by volatility. The potential participant has not yet purchased for circumstantial reasons. Age and lack of capital are the main ones. The best time to buy is when there are many strong potential entrants after a massive run by weak entrants.
In the bag of strong participants, we could include miners, whales, early investors, institutions, venture capitalists, large funds, and the most committed retailers. You could say that we are basically talking about the fundamentals of Bitcoin. We can calculate this with the help of indicators. It is very difficult to go into details. However, andIt is possible to draw a general idea of the strength of the user community with the help of indicators.
As far as potential participants are concerned, we can turn to surveys and demographics. Which S&P 500 companies have expressed interest in investing in Bitcoin? How many banks? How many mutual funds? How many countries? On the other hand, we must keep track of generational changes. The young are growing up. AND that growth has economic implications. A 25-year-old may not have the necessary capital to invest in Bitcoin right now. But over the years his financial capabilities will increase. That is, we can now project that in 5 years he will buy. This makes you a potential participant.
Now let’s talk about the weak participants. We are talking about short-term speculators, novices, inexperienced traders, and investors of little character. The retail sector is prolific of these beings. Which normally implies that a market dominated by retailers is a risky and volatile market. The sentiment indicator is a relatively useful tool for estimating. Extreme greed is usually a sign of a high presence of weak participants. It is usually an overbought signal. On the other hand, extreme fear is a flight signal by the weak participant. Usually an oversold signal.
In the case of Bitcoin, macroeconomic factors are particularly important. Bitcoin price benefits quite a bit from loose monetary policy (injection of liquidity). It shines in an up cycle. On the other hand, the path becomes opaque in the face of a cut in liquidity. Bitcoin is not a “wealth creation” asset. It is a “wealth transfer” asset. It is not a farm or a company. It’s a code. An exchange rate. And a rate is a pair. A pair is made up of two elements. Which implies, whether we like it or not, that the price of Bitcoin is closely related to the swings of the dollar. As simple as that.
A forecast of monetary tightening may cause fear among weaker participants. That is, it is an invitation to purchase. You want to buy cheap after a massive flight by weaker investors on the basis of strong fundamentals (many strong entrants and many potential entrants). First, we have a growing community and an emerging market. Second, fluctuations are normal because not all investors are made to withstand the pains of volatility. The weak are easily removed. But the good news is that they also come back easily.
I have presented a methodology that allows us to make an assessment of the situation. It is not about making predictions. I would say that it is a thermometer that can guide us to choose between the three options available to the investor: do I buy, sell or stay? Buying is a bet. In a way, it’s jumping into the water. It requires courage. What is the fear? Let the price drop after our purchase. What do we do in that case? We buy some more, trusting our thermometer. Or we simply wait for the water to return to its normal course. Buying is like playing baseball. We wait fearlessly and safely. And, when the ideal ball is presented, we take it out of the field.
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