Disclaimer: This is not an investment advice. Do your research before investing any money in encryption.
This article answers the most important retail question, “Should I invest in bitcoin now?” With bitcoin rising only, it can be difficult for new investors who expect a downturn to invest. While waiting for a setback to invest seems reasonable, it is not practical, especially for new users.
So, how do you invest? Clearly, expecting a pullback hasn’t worked since New Year’s Eve, as bitcoin has steadily increased by an average of 4%.
Regardless of the type of investor you may be, here are some things you should check before buying bitcoin:
On-chain metrics are a specialty of blockchain due to their transparent nature. Users can observe what is happening on the blockchain without compromising the user’s pseudonymity.
While the network’s metrics may seem intimidating, they are not. Dealing with chain data, on the other hand, can be a difficult thing to do. However, luckily for us, there are several sites that provide us with on-chain metrics without having to worry about data handling. All you have to do is interpret them.
Think of the metrics of the network as a prophecy, but only more certain and reliable.
Here are some quick metrics from the network that you can check before investing in bitcoin.
Stablecoin flow: Stablecoins are used to buy cryptographic assets, whether Bitcoin, Ethereum, XRP or Polkadot. Therefore, if we observe a large stable currency inflow on the stock exchanges, we can interpret this as a bullish signal, since investors are willing to buy and are entering the market.
Foreign exchange reserves: If foreign exchange reserves fall, we can assume that investors are withdrawing their funds from the exchanges and this only happens in a bullish race, where investors let their assets make a profit and wait for the top. Therefore, the reduction in foreign exchange reserves is an upward trend.
Exchange flow: If investors deposit any assets that are not stablecoins, it means that investors want to sell that asset or perhaps exchange it for another. Either way, it involves selling / converting an asset and is a bearish player. On the contrary, if we observe large outflows of assets [like BTC, ETH] of a stock exchange, we can assume that it is being stored in cold storage or was an OTC deal and investors are withdrawing it from the stock exchange in anticipation of a bullish run. So this is also optimistic.
See this article for an example.
Likewise, you can find more trends like these if you are familiar with on-chain data or other blockchain / exchange data. For example, take a look at the financing rate chart overlaid on the bitcoin price.
Source: CryptoQuant
A simple lesson here is that whenever the financing rate falls, it is a buy signal, since the price has risen, considering this drop.