When to Buy Crypto and Sell (Timing Secrets)

In this guide, we’ll walk through the key factors that impact when to buy and sell crypto. We’ll cover why it’s so hard to time the market, investor psychology, and what strategies can help you make better trading decisions. 

Why it’s almost impossible to time the crypto market 

It’s almost impossible to perfectly time buying and selling crypto. Here’s why: 

• Extreme volatility: Bitcoin has dropped 80% and rallied 300% multiple times since it was created. These swings are incredibly hard to predict and can happen due to a variety of reasons, including external news events and investor psychology.
• Speculative nature: Unlike stocks, most cryptocurrencies don’t have earnings reports or balance sheets to analyze. This makes valuation subjective to some degree. 
• News and narratives shift quickly: In the cryptocurrency world, news and narrative can create and destroy hype at a moment’s notice. It’s impossible to predict these external events (as well as the impact they may have on the market). 

Remember, even full-time finance professionals cannot reliably ‘time the market’. 

That’s why it’s recommended for retail investors to dollar-cost average. In other words, you should buy a small amount of cryptocurrency on a regular basis (for example, $100 of BTC a month). This will help you accumulate your holdings over time and buy cryptocurrency through market highs and lows. 

Why should I dollar cost average? 

Dollar cost averaging (DCA) is a strategy where you invest a fixed amount of money at regular intervals, regardless of market conditions.

Many investors who waited for the ‘perfect time’ to buy BTC and other cryptocurrencies in previous years missed out on valuable gains. Meanwhile, investors who bought a small amount of BTC at regular intervals saw the value of their holdings increase significantly. 

Benefits of DCA:

• Reduce the risk of bad timing
• Avoid emotional decision-making
• Smooth out volatility over time

When is the best day to buy crypto? 

Some studies show that Sundays and Mondays have low crypto prices, likely due to reduced institutional activity. 

However, this effect is small and inconsistent. You’re better off focusing on long-term trends rather than trying to time purchases by day of the week.

Why do most retail investors buy high and sell low? 

Many retail investors fall into the same trap: buying when prices are rising and selling after they’ve already crashed. Here’s why this happens: 

• Fear of missing out (FOMO): When prices surge for a crypto-asset, investors often rush in. Many investors are afraid of missing out on the ‘next big thing’, 
• Panic selling: When the market crashes, fear sets in. Investors often dump their holdings, afraid they’ll lose everything. 
• Herd mentality: Seeing others buy or sell often pushes investors to do the same, even if it goes against their original reason for making an investment. 

Example: In late 2021, Bitcoin hit $69,000 and saw a surge of media hype and new investors. By mid-2022, after a steep decline, many of those same investors had sold at a loss.

To avoid this trap, it’s important to take a long-term view towards investing.

Before you decide to sell, remember that the cryptocurrency market has been through several boom and bust cycles. Consider whether your original reason for making the investment has changed. If it hasn’t, you should consider holding. 

When is it time to sell a cryptocurrency? 

Here are some reasons you may want to sell cryptocurrency. 

1. You Need the Money

If you need funds for rent, debt payments, or any emergency expenses, it may be wise to cash out regardless of where the market is. 

Remember, your immediate financial needs should always come first. 

2. You No Longer Believe in the Project

If a coin’s fundamentals have changed, or your original investment thesis no longer holds, it might be time to exit your position.

For example, you may have invested in a project because you believed it was highly secure. If it later proves to have vulnerabilities, you may want to consider selling.

How can technical analysis help? 

Some traders choose to use technical analysis to find the ‘perfect time’ to buy a crypto-asset. This involves analyzing charts to try to find patterns and identify when a cryptocurrency might be underpriced. 

For example, some traders use technical analysis signals like ‘golden cross’ (when the 50-day moving average moves above the 200-day moving average). This is seen as a good time to buy, as it is often a sign that crypto ‘bulls’ have momentum.

Technical analysis has been criticized. Some commentators say that chart-reading is subjective, and that past trends do not necessarily indicate future performance.

What tools can I use to know when to buy and sell crypto? 

Some investors use tools like the Bitcoin Rainbow Chart and the Fear & Greed Index to try and time the market. 

Bitcoin Rainbow Chart: The Bitcoin Rainbow chart shows whether BTC is undervalued or overvalued based on historical trends. While the chart was originally created as a joke, it historically has been a useful tool to predict trends. 

Crypto Fear & Greed Index: The Crypto Fear & Greed Index is a popular tool that tracks market sentiment through crypto price charts, social media posts, and search trends. The tool is meant to determine the total amount of fear and greed in the crypto market at any given time. Excess ‘fear’ suggests that crypto may be underpriced. 

Remember, these tools are just one data point to take into account. They should not be the sole factor determining your decision to buy or sell. These tools do not take into account external news events and the state of the economy as a whole. 

Do I have to pay tax if I decide to sell? 

If you decide to sell your crypto, it’s important to remember that you’ll pay tax. 

When you dispose of crypto (selling your crypto or trading it for another crypto), you’ll incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it. All of your gains and losses should be reported to the IRS at the end of the year. 

While you can report your taxes manually, using crypto tax software like CoinLedger can help you generate a complete crypto tax report in minutes. 

In conclusion 

There’s no perfect formula for when to buy or sell crypto. But by understanding your investment goals and avoiding emotional decisions, you’ll be better prepared to stand your ground against the ups and downs of the market.