Buy the Dip

#buythedip: What does it mean and should you do it?

No, we are not asking you to run to your nearest supermarket to grab hummus (though we won’t stop you from getting it if that’s what you want 😉). The dip here refers to the declining value of an asset. Before diving into the topic – ‘Buy the dip’, let us try to understand market cycles.

 What are market cycles?

In an ideal world, the appreciation of any asset would be directly proportional to its performance. Moreover, its value would move upwards on a price chart, provided that there was an increase in demand and supply. However, a price chart of an asset does not move in a straight line. It tends to show a pattern of highs and lows. These changes in the value of an asset are affected by various market factors like supply and demand, current events, investor sentiment, company performance, etc. Moreover, the changes in price are found to follow a pattern over time.

The cryptocurrency market is majorly dependent on supply and demand and current events, however, other factors like government regulations and corporations accepting crypto payments have also had a substantial effect.

Take a look at the change in price for Bitcoin from Dec 2011 to Dec 2021.

BTC cycle

Image obtained from TradingView.

The illustration above demonstrates the cyclic pattern in price change of Bitcoin over the years, however, it is still a topic of debate among financial analysts whether Bitcoin follows a smooth sinusoidal cyclic pattern. It must be noted that throughout this cycle of highs and lows, the price of BTC has largely remained above the resistance line.

Assets do not generally follow a smooth and periodic market cycle. There may be a couple of rises, followed by a peak, then dips, and sometimes, an asset may not go above a certain price point, in turn bottoming out.

How long does a market cycle last?

Traders who study assets for long periods of time are able to visualize and forecast the change in the performance of an asset. They may then estimate the right time to buy or sell the asset to maximize their profit.

Having said that, despite the past performance of an asset, market cycles are volatile in nature. They may vary, not just in terms of their duration but also their frequencies. A market cycle for a particular asset may sometimes occur within a few hours or may take years. Given the fluctuating nature and rapid advances of the crypto market, the market cycles tend to be even more unpredictable. However, it is important to note that they are recurring and they exist due to a variety of reasons, the most important one being human emotion. Take a look at the illustration below to understand how human psychology factors in, in a market cycle – 

Buythedip

Human emotions regarding a market may be broadly broken down into two aspects – Fear and Greed. At the peak of a cycle, traders generally make the mistake of buying the asset, believing it will make even more profit. Moreover, near the dip, traders sometimes panic that the prices may fall further and in order to avoid incurring additional losses, they end up selling. Nevertheless, it is this dip, which is actually the best time for investing.

A lot of crypto traders seem to believe that cryptocurrencies follow a four-year cycle. This has held true to some extent, however, unprecedented events like Covid-19 and its variants, banning of cryptocurrency mining, tax impositions, wars and conflicts have had huge impacts on the prices of various cryptocurrencies as well.

Buy the dip AND Sell the rip

Going by most market cycles, it is evident that a dip in the price is generally assumed to be followed by an eventual gain in its price. This is why people buy an asset during a dip.

“Buying the dip” has traditionally been a tried-and-tested mantra among traders. It refers to buying an asset when it is declining in value. Now since markets are cyclic, you get the asset cheaper than it was, and you hold it until the value rises. Once the value reaches a new high, it is easy to sell the asset and make a profit. Hence, buying the dip is successful, only when you ‘sell the rip’. The rip here refers to the peak in prices.

Why do investors buy the dip in the crypto market?

Some investors look towards the crypto market as a long-term investment, since prices have seemed to rise 100x for certain cryptocurrencies. When the market is on the decline, they buy more of the same crypto, to average out their crypto buying price to a lower number. However, since the crypto asset class is relatively new, many investors also opt for a short-term trade. Whenever the price rises, traders are able to sell their crypto and make a profit. Buying for short-term or long depends on one’s financial plans, and risk-taking ability, and must be taken accordingly.

Regardless of the tenure of investment, during a dip, it is easy to buy crypto at cheaper prices, just like it is easier and cost-effective to buy products during a sale. You can use our platform to buy crypto easily, or contact us on WhatsApp or Telegram.

Summary

Buying the dip can be profitable and is a lucrative opportunity, but there are no guarantees that a single trade will work out. Sometimes, you need to make small trades at various intervals to average out the cost price for your asset, before eventually selling it for a profit. It is high risk and high reward technique. However, we understand some people are more comfortable with low-risk investments. In that case, you can use our platform to buy stablecoins like USDT, USDC, etc.

Please note that this article is an opinion, and does not represent financial advice by IN4X Global.

IN4X Global is a gateway to build a transparent financial economy that is powered by crypto and accessible to all.