The Crypto Dips – 3 Reasons You Should Buy (and 3 Why You Shouldn’t)
Buying the dips is as simple as it sounds: purchasing an asset when its price has dropped. The goal is to sell it later when the market corrects itself and prices rise again.
Methodically speaking, there’s a lot more that goes into manipulating the crypto dip. There are many things to consider, such as when is the best time to buy, or which coin to get, and how much of it.
Not all crypto dips guarantee a profit, even if there was a persistent uptrend prior to whatever happened that brought it down. Think of it as a bargain and not free real estate.
Buying the dips applies to all things. The concept existed long before stocks and cryptocurrency became the norm. A Black Friday sale is considered buying the dip. Snagging that 70-inch TV that you don’t really need at a 25% price is a bargain. You can then sell it to your uncle Tom who doesn’t have a TV at 50% price and make a profit.
The problem is if uncle Tom happened to have already bought a TV, you’d be stuck trying to get rid of it some other way. A few days later, if the store decides to sell all TVs at 20% price, you’d be out of options.
Read on to find out why you should or should not buy the crypto dips, including many other things to consider.
Buy the Dips When There’s an Uptrend (Should)
An uptrend is when an asset’s price moves in a generally upward direction. Its highs and lows are usually higher than the previous peaks and troughs. What this tells you is when the price drops, there’s a very high chance it would rise back up.
Many investors buy the dips when a coin or stock pulls back with the expectation that it will soon return to its original position. While there have been credible successes with this method, it remains a working theory. In reality, there’s no foolproof way to know what an asset will do.
One thing to mitigate the risks involved is to use the signal line. If a cryptocurrency has a known uptrend, its lowest point should never cross this line. Once it does, the coin in question might have entered a downtrend, which makes everyone who bought the dips losers.
Buy the Dips to Enter a Crypto Network (Should)
When the prices drop, it’s a good time to buy into a crypto network to start earning more coins. This method is otherwise known as Staking.
Modern cryptocurrencies like Ethereum and Cardano use a validation system called Proof of Stake. Coin holders can verify transactions to earn more than what they have in the network.
Buying the dips in a Staking network will allow you to start earning at a much lower cost. It will also coincide with the increase in transaction traffic within that network due to the price drop.
Buy the Dips of Well-established Crypto (Should)
Bitcoin is a great example of well-established crypto. It’s one of the most volatile assets in history and has survived some of the biggest crashes. The lowest dip of bitcoin happened in 2011 where its price dropped by over 99%. It was a miracle for investors to recover anything at all after that, but they did.
Despite all that, bitcoin has managed to weather the storm of fluctuations and maintained a persistent uptrend since its inception.
It usually comes down to track records. If crypto is still standing after numerous dramatic episodes like bitcoin, it’s likely to recover from a dip.
Buy the Dips to Average Down (Should NOT)
When crypto drops in price, many investors will buy even more of it. Doing so makes the average price at which they bought that coin lower. When you appear to have spent less on a coin, its price doesn’t have to go that high for you to make a profit.
For example, you bought ten of a certain coin for $10 a piece, and today it dropped to $8. Instead of planning to cut losses, you buy ten more coins. Now, you have 20 coins for $180, making the average price of each coin $9. If tomorrow, the price corrects itself to $10, you would make a $20 profit instead of just your money back should you not have bought the dip.
The only problem with this strategy is it’s only good for long-term investments. People who use this technique have a clear and precise vision of how the asset will behave way down the road. These types of investors are unfazed by downtrends and will buy the dips with unyielding conviction.
If you’re not one of those guys or have no long-term plans, try not to overcommit to a single coin.
Buy the Dips Before a Crash (Should NOT)
When you can’t determine if the dip is a temporary drop or the beginning of a downtrend, it’s not a good idea to buy.
Many things can cause a crypto dip. Network overload, account hacks, regional bans, just to name a few. Usually, when an influential corporation announces acceptance of crypto, it’s a sign the price of that coin will rise. If that same corporation decides later to stop accepting the crypto, its price will likely decline.
Before buying the dips, make sure to determine what has caused them and if the market would correct itself later.
Buy the Dips of New Coins (Should NOT)
When a new coin or token hits the market, it often maintains an uptrend for the first few cycles. This is the excitement period where everyone is buying into the enthusiasm rather than financial vision.
Eventually, a dip will come and it can mean one of two things: it’s temporary and will come back up even higher or people have lost interest and are cashing in their early investments. In the case of the latter, it’s a terrible idea to even consider holding it, let alone putting more money into an imploding bubble.