Cryptocurrency is a notoriously volatile industry, regardless of what currency you are trading. During periods of extreme volatility, it’s easy to get discouraged when trades don’t go as expected. It’s also easy to become overconfident when you’re lucky, falsely attributing it to your trading strategy, when, in reality, the price often went up or down for reasons other than what you assumed.
Despite the uncertainty, sometimes there are still strategies you can use to trade certain tokens successfully. Ether (ETH) is arguably where it could succeed this year. Here are three tips that can help.
Understanding what really affects ETH price movements
There are many ways to analyze the price of a given cryptocurrency, and different price valuations will be given depending on the model used and how much weight is given to a specific set of conditions.
But incorrect weighting can lead to wrong conclusions. For example, a cryptocurrency can generate positive buy signals across the board, but other factors can send the entire market crashing.
New daily reminder: $ETH at some point it will clear this area of $1072. Whether we go higher first or not pic.twitter.com/786H6iprmB
—Pentoshi (@Pentoshi1) January 7, 2023
This is precisely what happened with the Ethereum Merge, where a successful transition to proof-of-stake that reduced consumption by 99.9% was not really reflected in the price. In fact, the bearish traders drove the price to the bottom.
The crypto market also tends to correlate strongly with Bitcoin (BTC), which is traded with a lot of institutional and hedge fund money that is tied to interest rates and traditional financial markets. ETH currently has a 0.9 correlation with Bitcoin.
Prior to May 2021 and November 2021, ETH experienced significant price increases. This was attributed to big company announcements, such as the European Investment Bank’s decision to offer a two-year bond on the Ethereum blockchain. Visa also announced plans to transact USD Coin (USDC) on top of Ethereum.
Related: Bitcoin will rise in 2023, but be careful what you wish for
A summary of the factors that affect the price of Ether is that it will be most affected by Bitcoin price movement, interest rate decisions, institutional investment, and macroeconomic conditions that discourage investment.
However, blockchain fundamentals may point strongly towards appreciation in the medium term, perhaps one to three years. By these indicators, Ethereum is a very powerful blockchain with a thriving ecosystem ready to grow.
Anticipate seasonality
Like other cryptocurrencies, ETH has specific months when it performs well and months when it performs poorly. It performs the worst in September, June, and March, which means those can be good times to become a buyer.
Instead, it behaves well in February, April and May. This is a time for traders to place sell orders, while buy-and-hold investors may simply avoid these months in investment terms (although other criteria must be taken into account as well).
While there are claims that certain times of the day are more lucrative than others for investment, studies have shown that this is not the case, at least when it comes to Bitcoin. The same applies to the days of the week.
Even if there are certain days or hours to trade Ethereum, only active traders will be able to measure this information correctly and bear the increased fees of more regular trades. More realistically, seasonality can be applied on a monthly basis and perhaps quarterly for most.
Seasonality is something to keep in mind, as there are definite monthly trends.
Consider the average cost in dollars
A popular and research-backed means of trading Ether (and any other asset) is dollar cost averaging (DCA), a technique first popularized by Benjamin Graham and applied to the stock market.
DCA is a means of investing smaller amounts at specified intervals. You could, for example, invest a specific amount at the beginning of each month. This ensures that you get all the highs and lows (at least month to month), smoothing out volatility.
Related: Post-Fusion ETH has become obsolete
It’s a great way for newcomers to break into the market because it requires no technical expertise or time investment. You don’t have to do research or learn statistical models or correlations (although you can obviously do it on the side).
DCA can also be a great base for more creative investments, providing a stable base. For example, you can combine it with seasonality, choosing the three or four months that Ether has historically been low in price.
At the very least, DCA can help you avoid the volatility of the cryptocurrency markets with investments spread over time. Retaining your investment is just as important as making a profit, a fact that is often overlooked in an industry often overtaken by hype and profit.
Other points to keep in mind
The upcoming Ethereum Shanghai update in March will allow users to withdraw staked ETH, valued at over $20 billion in mid-January, though it is unclear whether investors will capitalize on the bearish opportunity or continue to hold their ETH, which would be bullish.
Fundamental indicators regarding a given blockchain (active addresses, forks, functional upgrades, node diversification, speed, etc.) are often not factored into short-term pricing. The Ethereum merger, for example, reduced waste by 99.9% but did nothing for price, as it was overshadowed by broader economic factors.
But these are certainly useful indicators over a longer time horizon. The work that has been done to improve the Ethereum blockchain and ecosystem will eventually be reflected in its price.
In this sense, Ether is a wonderful investment opportunity for late 2023 and perhaps 2024, given recent innovations.
It is, in many ways, a perfect symbol for a patient investor.
Daniel O’Keeffe He worked for three years as a compliance analyst for JPMorgan and State Street. She has a Masters in Computer Science from University College Dublin and a Law Degree from the University of Limerick.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
