06 April 2022 • 8 min read
Crypto trading is open for business 24/7/365. In fact, crypto markets are now putting pressure on bourses to open at all hours, further demonstrating the impacts crypto on the broader financial industry. As quoted in the Financial Times, 24 Exchange’s chief executive Dmitri Galinov notes that,
Once cryptocurrency trading [went mainstream], people became very accustomed to its unlimited availability, so I believe they will expect such 24/7 trading availability for other assets. Customers are already asking: why can I trade Bitcoin but not Tesla after market hours or on a weekend?
Fair enough point. But it raises the obvious question: if markets are open all the time, when is actually the best time (or times) to trade crypto or stocks? It’s a problem that crypto traders continue to face, but there are a number of approaches that you can take based on your risk tolerance and investment goals. Let’s take a look at a few of them below.
Dollar-cost averaging is an investment strategy that involves regularly investing a given amount of money in an asset, regardless of market fluctuations. When prices rise, you buy smaller quantities for the same amount, and when prices fall, you buy larger quantities for the same amount.
That is why it is also called "programmed investment." Primarily, this trading strategy aims to smooth out the risks associated with price volatility in the financial markets. With scheduled investment, you invest regularly and long-term to avoid the consequences of a single purchase made "at the wrong time."
Since the goal is to get the most out of structurally bullish markets over the long term, it is essential to hedge against short-term volatility in the crypto market. The DCA strategy prevents you from buying an asset at the market peak.
Therefore, when prices gradually rise in the long term, high points become higher and higher, and low points become lower and lower. This allows you to take full advantage of the underlying uptrend.
In contrast, investors who buy crypto at all-time highs will have to wait for the market to set new records to attain significant returns, making it somewhat more difficult to determine the best cryptocurrencies to buy (and when to buy them). But one who invests using the DCA has smoothed his purchases and will see his total investment grow on average at the pace of the market.
There are a number of proven benefits to dollar-cost averaging. As Investopedia writes,
The key advantage of dollar-cost averaging is that it reduces the effects of investor psychology and market timing on their portfolio. By committing to a dollar-cost averaging approach, investors avoid the risk that they will make counter-productive decisions out of greed or fear, such as buying more when prices are rising or panic-selling when prices decline.
Let's take a closer look at a few advantages to be had from DCA.
Suitable for Every Investor
DCA allows anyone to invest in crypto with modest capital and gradually accumulate assets depending on their financial goals. It is also simple to set up since it doesn't involve complex technical or fundamental analysis.
Reduces Impact of Volatility
Periodic purchases in fixed amounts specific to the dollar-cost averaging strategy limit the impact of price volatility. This makes DCA especially advantageous for risk-averse investors. It also allows investors to limit the risk of overexposure to a given asset by predefining the amount and time to invest.
Maximizes Long Term Gains
Ideally, the future of cryptocurrency is seen by many as a growth market, albeit with some extreme volatility. Typically, investors would give in to FUD and FOMO and prematurely dispose of their cryptos in favor of short-term gains, thereby missing out on the longer-term potential. However, DCA allows you to invest in structurally bullish crypto and maximize the HODLing period.
Despite its many advantages, there are some drawbacks to consider as well.
Unsuitable for Short Sellers
DCA is designed to accumulate the underlying asset for a longer period, which means it's only suitable for investors who are bullish on a particular crypto. Short-term traders cannot take advantage of the periodic bear markets through short trading.
Prioritizes Risk Over Returns
As we mentioned, DCA is ideal for risk-averse investors. That's because it smooths out the effects of volatility. However, although volatility carries significant risks, it presents an opportunity for higher short-term gains, especially when leverage and proper risk management measures are used.
One of the most popular ways to invest or trade in the crypto market involves timing the best time to enter the market. This is where technical and fundamental analyses and automated, algorithmic trading strategies come into play.
Technical analysis involves using technical indicators—often inbuilt on the trading platform—to determine the trend and momentum of a particular crypto. With these indicators, you analyze the crypto chart patterns, say for Ethereum or Litcoin, and the historical trends to forecast the price action. There are hundreds of trend, momentum, and volume indicators that you can customize depending on your trading style to determine the optimal entry and exit.
Fundamental analysis attempts to measure a cryptocurrency's intrinsic value by examining qualitative and quantitative related economic and financial factors. However, when it comes to timing the market, the fundamental analysis we concern ourselves with involves geopolitical developments and news regarding particular crypto. Typically, short to medium-term traders prefer this approach. But this means that you must be up-to-date with the developments in the crypto market.
Here's an example of how timing the market works with fundamental analysis.
On March 29, 2022, news broke that hackers stole about $600 million from Ronin Network on March 23, 2022, in one of the biggest crypto heists in recent history. After the hack was made public, RON, Ronin blockchain's native token, dropped about 30%.
Here's another one.
In February 2022, Waves Tech announced it is transforming to Waves 2.0. This transformation would include a series of upgrades, such as a new consensus with Ethereum Virtual Machine support and a DAO framework. It also announced the launch of Waves Labs in the US. Consequently, the WAVES token surged more than 600% in five weeks.
Here are the primary advantages of timing the market:
As we mentioned earlier, you can buy crypto from exchanges such as Binance 24/7. But different time zones mean that most traders operate during business hours. Typically, day traders and scalpers concern themselves with the best time of day to buy crypto. Why? Because the primary goal here is to capitalize on increased volatility. And volatility is high when market activity is heightened.
This means that the best time of day to buy crypto is during the overlap of the most significant business hours globally. This is between 1 PM to 3 PM GMT, which is the overlap between European and American business hours as well as between 11 PM to 1 AM GMT, which marks the end of the American business day and the start of Australian and Asian market hours.
Two things impact the best time of day to buy crypt: supply and demand and the flow of capital.
Supply and Demand
Crypto prices are primarily driven by supply and demand. For any buyer, the goal is to buy low and sell high. And going by the law of supply and demand, the price is lowest when demand is at its lowest and supply at its highest.
How does this impact the best time of day to buy crypto?
During the 1 PM to 3 PM GMT overlap, European day traders are closing their positions, which means an increase in supply, hence lower prices. The imminent start of the American business day means that demand is about to rise, sending prices higher. However, if you intend to open a position during this period, let technical and sentiment analysis guide your decision.
The Flow of Capital
Volatility in the crypto market is impacted by inflows and outflows of capital within the cryptocurrency market. The largest flow of capital is from institutional and corporate traders who operate within the business hours in their respective time zones. Typically, this is during the start and end of business hours, which means that the best time to open a position is when one business day ends and another begins.
The demand for cryptocurrencies is usually at its low during the weekends and lowest on Sundays, making it the best time to buy cryptocurrencies. The biggest reason behind the low demand for cryptocurrencies during weekends is the volume traded.
Admittedly, the biggest participants in the crypto market are corporations and institutional investors, most of whom rarely operate during the weekends. The volume traded over the weekends, both in the spot and futures market, significantly drops.
When there are fewer active traders in the market, then the market becomes more vulnerable to volatility when large orders begin to flow in. Typically, weekends have registered higher swings than any other day of the week.
Therefore, it is ideal to position yourself in the market at the end of the weekend to take advantage of volatility as traders flow back into the market when the weekday begins.
On a macro scale, the market news determines the medium-term crypto price trend. That means pinpointing the best time of the month to buy crypto circles back to fundamental analysis. A piece of significant news impacting specific crypto may determine its trend throughout the month or even longer. Market news is the one thing you should look out for here.
Market news may vary from crypto-specific news, as we illustrated earlier, or general news such as planned legislation, for example, when there's a big debate on crypto regulation by the US Congress. And since the market doesn't know the outcome of these debates or the nature of the regulations being considered, the slightest bit of positive or negative news is bound to influence the price action for the coming weeks.
So, when is the best time of day to buy crypto? As we've discussed, the answer depends entirely on your trading strategy. Longer-term traders and investors may prefer using the DCA strategy, while shorter-term leveraged traders may prefer timing the market.
Generally, there is never an easy way to perfectly time your entry into the market since several factors affect the price of crypto. However, crypto prices are usually lower when the market has fewer active traders. This usually makes the late weekends and nights the best time to buy crypto. But always remember to incorporate technical, fundamental, and sentiment analysis in your trading. And always do your own research.