Crypto Crash: Is Now The Time To Buy The Dip?
Investing in crypto is like riding a rollercoaster with large appreciations followed by sudden dips. Read on to know if now is the time to buy the dip.
A cryptocurrency, also known as crypto, is a collection of binary data used as a form of payment. The records of currency ownership are kept on a digital ledger, which is a computerized database. This database safeguards transaction records, regulates coin manufacturing and verifies ownership transfers due to its strong encryption.
Cryptocurrencies are characterized as fiat currencies and are convertible into commodities. To keep the coin running, validators are utilized in numerous crypto schemes. Token owners put their tokens up as collateral in a proof-of-stake system.
Users receive proportional control over the token based on their stake in the exchange. As a result of network fees, newly-minted tokens, or other similar compensation mechanisms, token stakers often obtain more ownership of the token over time.
The 2018 Cryptocurrency Crash (also known as the Bitcoin Crash or the Great Crypto Crash) began in January 2018. This resulted in the sale of practically all cryptocurrencies. Bitcoin’s price fell by roughly 65 percent in January and February 2018 after a spectacular increase in 2017.
The price of Bitcoin dropped below $20,000 for the first time since December 2020 on Saturday, amid a broader market meltdown driven by rising interest rates, inflation and economic uncertainty spurred by the war in Ukraine. Back in November 2021, it traded for as much as $69,000. A more than 50% drop represents significant losses.
Ethereum (ETH) also fell below £1,000, down from around £1,400. Cardano (ADA) suffered a similar fate, falling from 51p to 40p.
It’s these kinds of losses that have prompted the UK financial regulator, the Financial Conduct Authority (FCA), to issue repeated warnings to crypto investors saying there are no guarantees of returns and that people should be prepared to lose everything they invest.
Oleg Giberstein, the co-founder of crypto trading platform Coinrule, thinks crypto is undergoing the same stresses as other parts of the economy, leading to the fall in prices. He said: “It’s not just crypto that’s down, everything is down, and over the next 6-12 months the economic outlook is bad. Central Banks are between a rock and a hard place with regard to slow economic growth and high inflation. So, investors are escaping ‘risk-on’ assets like crypto and tech stocks.”
Is now the Time to buy the dip?
The principle of ‘buy the dip’ is based on an assumption price declines are temporary aberrations that correct themselves over time. Buyers will stand to widen their profit margin when the price recovers to the previous high or even overextends it.
Crypto markets are volatile, so buying a dip is risky as prices can not only return to previous levels but also fall even further, leaving your investment underwater.
Bitcoin prices in particular have shown a degree of seasonality to date, appearing to fall in value to lesser or greater extents in the spring before bouncing back in early summer. However, as with every kind of investment, let alone the unpredictable world of cryptocurrencies, past performance is no guarantee of future results.
Oleg Giberstein said: “Many a novice investor has been burned trying to ‘catch falling knives’”. He advises those who want to buy the dip, to decide on a set amount of money they’re comfortable with using to buy BTC or ETH each month and not to worry too much about what happens to prices over the next two years.
What to Watch out for if you do buy the dip?
As we already know, there’s a lot of uncertainty right now. Things could definitely go lower across the board in the short term.
So, the following rules will help you take the right action if you buy the dip:
1. Don’t expect a quick recovery or to make some fast money, keep a long-term mindset.
2. If you buy an investment, just because it’s gone down doesn’t guarantee it will go back up to previous highs.
3. Instead of trying to time the market, invest in smaller doses so that you can benefit if stocks and crypto fall further.
4. Be careful not to overextend and invest more than you can afford, some cash on the sidelines can be useful for more opportunities.
It’s a terrible time for all asset classes at the moment. Even gold and silver are languishing. But, it’s these kinds of situations that have allowed investors who are in it for the long haul to make some serious money.
However, we may say that volatility is endemic, bubbles and crashes are commonplace, and there are divisive opinions on environmental, ethical and social benefits. The major correction in this market has tested the will of even the most avid crypto-enthusiast. Buckle up because this story is not over yet.
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