Cryptocurrency is a notoriously volatile industry, regardless of what coin you’re trading. During periods of extreme volatility, it’s easy to become disheartened when trades don’t go your way. It’s also easy to become overconfident when you get lucky, falsely attributing it to your trading strategy — when, in reality, the price often rose or fell for reasons other than you assumed.
Despite the uncertainty, there are sometimes still strategies you can use to trade certain tokens successfully. Ether (ETH) is arguably where you might be able to succeed this year. Here are three tips that might help.
Understand what actually 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 produce erroneous conclusions. For instance, a cryptocurrency can generate positive buy signals across the board, but other factors can send the entire market tanking.
This is precisely what happened with Ethereum’s Merge, where a successful transition to proof-of-stake that reduced consumption by 99.9% was not really reflected in the price. In fact, bearish traders ran the price into the ground.
The crypto market also tends to correlate heavily with Bitcoin (BTC), which is traded by a lot of institutional and hedge fund money that is tied to interest rates and traditional financial markets. ETH currently holds a 0.9 correlation with Bitcoin.
Leading up to May 2021 and November 2021, ETH experienced significant price increases. This was attributed to announcements from big firms, such as the decision of the European Investment Bank to offer a two-year bond on the Ethereum blockchain. Visa also announced plans to transact in USD Coin (USDC) over Ethereum.
A summary of the factors that affect the price of Ether is that it will be affected most heavily by Bitcoin’s price movement, interest rate decisions, institutional investment and macroeconomic conditions that discourage investment.
Fundamental blockchain indicators, however, can strongly point toward medium-term appreciation, perhaps over one to three years. Based on these indicators, Ethereum is a very powerful blockchain with a thriving ecosystem set for growth.
Anticipate the seasonality
Like other cryptocurrencies, ETH has specific months where it performs well, and others where it performs poorly. It performs the worst in September, June and March, meaning those may be good times to become a buyer.
In contrast, it performs well in February, April and May. This is a time for traders to issue sell orders, while buy-and-hold investors might simply avoid these months in terms of investment (though other criteria should also be taken into account).
While there are claims that certain hours of the day are more lucrative than others for investment, studies have shown this is not the case, at least where Bitcoin is concerned. The same applies to days of the week.
Even if there are certain days or times to trade Ethereum, only active traders will be able to gauge this information correctly and withstand the increased fees of more regular trades. More realistically, seasonality can be applied on a monthly and perhaps quarterly basis for most.
Seasonality is something to keep in mind as there are definite monthly trends.
A popular and research-backed means to trade Ether (and any other asset) is dollar-cost-averaging (DCA), a technique first popularized by Benjamin Graham and applied to the equity market.
DCA is a means of investing smaller amounts at specific intervals. You could, for instance, invest a specific amount at the start of each month. This ensures that you get all the highs and lows (at least on a month-to-month basis), smoothing out volatility.
Related: Post-Merge ETH has become obsolete
It’s a great way for newcomers to enter the market because it requires no technical expertise or time investment. You don’t have to conduct research or learn statistical models or correlations (though you can obviously do this on the side).
DCA can also be a great baseline for more creative investments, providing a stable foundation. For example, you can combine it with seasonality, choosing the three to four months where Ether has historically been priced on the low end.
At the very least, DCA can help you to avoid the volatility of the cryptocurrency markets with investment spread out across time. Holding on to your investment is as important as making profits, a fact often missed in an industry often overtaken with hype and profits.
Other points to keep in mind
The upcoming Ethereum Shanghai upgrade in March will allow users to withdraw staked ETH, valued at more than $20 billion as of mid-January, though it isn’t clear whether investors will capitalize on the opportunity — which would be bearish — or continue holding their ETH, which would be bullish.
Fundamental indicators with regard to a given blockchain — active addresses, forks, functional upgrades, node diversification, speed, etc. — are often not factored into the price on a short time horizon. Ethereum’s Merge, for instance, reduced waste by 99.9% but did nothing for the price, being overshadowed by wider economic factors.
But these are certainly useful indicators on a longer time horizon. The work that has been done to enhance the Ethereum blockchain and ecosystem will, eventually, be reflected in its price.
In this regard, Ether is a wonderful investment opportunity for late 2023 and perhaps 2024, given recent innovations.
It is, in many ways, a perfect token for a patient investor.
Daniel O’Keeffe worked for three years as a compliance analyst for JPMorgan and State Street. He holds a master’s degree in computer science from the University College Dublin and a legal 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 here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.