CoinNet Report:
Is it time to aggressively buy the dip?
Despite the current low implied volatility in the market, it has shown an increasing trend in recent years. This indicates that market sentiment is becoming more unstable, potentially leading to irrational behaviors spreading, although panic has not yet emerged.
The true buying opportunity (the actual bottom, though extremely difficult) arises after a genuine panic occurs.
During a genuine market panic, prices often drop significantly below the intrinsic value of assets. This is the optimal moment for bottom fishing, as investors can purchase high-value assets at highly attractive prices. Investors should remain calm, await further market developments, and seize the genuine buying opportunities when they arise.
Specific references to Bitcoin at key time points:
March 2020 -33%, implied volatility 190
Bitcoin Performance: In March 2020, Bitcoin plummeted to around $4,000, marking a sharp decline from its high of about $9,000 in just a few days, known as “Black Thursday.”
Buy Signal: Despite heightened market panic, this crash provided an excellent opportunity for bottom fishing. With governments and central banks globally launching massive economic stimulus plans, Bitcoin quickly rebounded in the following months, reaching and surpassing a new historical high of $20,000 by year-end.
May 2021 -45%, implied volatility 160
Bitcoin Performance: In May 2021, Bitcoin dropped to around $30,000 from its high near $65,000 in April, halving in value.
Buy Signal: Despite panic selling in the market, both bottom fishers and long-term investors quickly intervened, optimistic about Bitcoin’s long-term prospects. Subsequently, Bitcoin gradually recovered and again surpassed the $60,000 level by the end of 2021.
June and November 2022 -22%, implied volatility 110
Bitcoin Performance: In November 2022, Bitcoin fell to around $16,000, reflecting a significant blow to market confidence in the crypto industry, especially concerning major trading platforms.
Buy Signal: Nevertheless, some investors viewed this as an excellent entry point for long-term Bitcoin holdings. As the market gradually digested negative news, Bitcoin stabilized in the subsequent months, showing signs of recovery.
July 2024 -8%, implied volatility rose to 57.5, awaiting a bottom
Despite the current rise in implied market volatility, it has not yet reached true panic levels. Investors should closely monitor market trends and wait for more evident signals of panic before considering bottom fishing.
The crashes and subsequent bottoms at these key time points offer valuable lessons for investors. However, markets like those seen in March 2020 and May 2021 often intimidate most, even with opportunities presented.
Short-term market fluctuations should not influence the long-term evaluation of Bitcoin’s value. Patient investors often identify undervalued assets after panic selling, reaping substantial returns as markets recover.
The primary reasons for the current downturn include Mt.Gox and governments’ selling, though the market may overstate their impact.
The market can be slow to react to real news, yet hypersensitive, prone to overreacting to minor developments. Ultimately, “the most significant factors affecting future market trends lie in the results of the US presidential election and expectations of Federal Reserve interest rate cuts.”
Approximately 24 days remain until the next Federal Reserve meeting on August 1, 2024.
Therefore, for market participants including retail and institutional investors, shifting from “long-term thinking” to “short-term thinking” may currently be preferable. Focusing on trend trading within 6, 4, or even 2-hour timeframes, rather than dwelling on unanswered questions like whether Bitcoin or the market is in a bull market, is advised.
In summary, the strategy can be boiled down to 16 words: Understand the situation, abandon illusions, engage in short-term operations, and patiently await positive developments.
In essence, long-term investors can afford to wait out sudden dips without rushing to commit significant funds. However, establishing a base position now may be a prudent choice for cautious investors, while those with lighter positions may consider adding incrementally. Short-term gains should be taken advantage of promptly; with the market’s current ambiguity, profits should be secured, with re-entry opportunities considered should the market reverse.
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