3 times when it makes sense to buy Crypto on the Dip

Image Source: Getty Images

Buying a dip is a cry on social media, but it is not always a good idea.

Important points

• Only buy the dip if you have money left over and have researched the investment.
• Cryptocurrencies are extremely volatile and may fall further.
• Timing the market is almost impossible, but buying when prices are low can work for long-term investors.

“Buy the dip” has become something of a cry on social media in the midst of ever-falling crypto prices. El Salvador’s president Nayib Bukele – a well-known crypto enthusiast – has actually bought dip for his entire country. Buying a dip is when you pick up an asset after it has fallen in value.

As an investment strategy, the idea of ​​buying low and selling high seems to make sense. But, like many investment strategies, it is easier said than done. Keep in mind that if you had bought Bitcoin when it first “dived” in early January, your investment would still be worth almost 60% less today. It is very difficult to know how low crypto can go, which is one of the biggest challenges for dip buyers. Here are three times when it might make sense to buy crypto on dip.

1. When you have money left over

The golden rule for crypto investing is to only invest money you can afford to lose, especially dips. Falling prices can create a false sense of urgency. There is a fear that there may only be a short window before cryptorally again. This can cause investors to spend money they actually need for other financial purposes. Do not do it.

The ideal scenario is that you spend money you have already earmarked for crypto investing. It makes absolutely no sense to buy the dip if you are behind with your pension contributions or do not have a fully filled emergency fund. If you are trying to pay down high interest debt, always prioritize this over any cryptocurrencies. Buying a dip should not stop you from building a solid financial foundation.

2. When you think it is a good long-term investment

Do you have items on the back of your cabinets that you bought on sale, and think they were a bargain, only to find that you never use them? Whether you are shopping for real-life items or cryptocurrencies, a bargain is only a bargain if it is something you actually want. In crypto terms, it only means buying projects you have researched and believe will yield good results over the next five to 10 years.

Here’s the thing: Cryptocurrency prices may continue to fall further, and some may fall to zero. We do not know what will happen in the crypto market, especially what impact future regulations may have. Many projects came out of the crypto frenzy in 2020 and 2021, and there is a good chance that many of them will fail. Those who are ill-considered, overly experimental or not useful are particularly vulnerable. Only buy cryptocurrency on dip if you actually want it and see the value in it.

When you are not trying to time the market

Much of the time, the idea of ​​buying dip is associated with short-term trading instead of long-term investment. The idea may be to try to buy low and then sell when prices rise. But how do you know when an asset has hit rock bottom? And how can you be sure that it will restore its former heights? When it comes to equity investments, the saying that the time in the market is better than the timing of the market is usually true – especially for retail investors.

Buying a dip can be part of a buy-and-hold investment strategy, especially in a volatile market such as crypto. Maybe you identified a coin or token you wanted last year, but were reluctant to buy in when prices were at their peak. With prices at 18 months’ lowest level, it may be a good time now. One of the difficulties here is deciding when to jump in. There is a risk of lingering too long on the sidelines and never buying anything.

The bottom line

It may make sense in a speculative industry like crypto to try to bite down. For example, if you think that Bitcoin may eventually continue to reach new heights, you can try to buy small amounts each time it falls lower. You really accumulate in these difficult times in the hope that you will eventually see decent gains.

However, it is only useful if you are not spending the money you need – preferably money you have set aside to wait for the right time to jump in. You need to be prepared for potential further price falls, or that the price will drop to zero. Most of all, if you are buying Bitcoin or other crypto at low prices, it is important to have done research and understand what you are buying in advance.