“Buy the f*cking dip!” “This is the last chance to buy the dip in 2022!” “Have you bought the dip?” “Retweet if you have bought the dip.”
The above statements will ring a bell in your ears if you frequent crypto communities on Twitter, Reddit, Discord, telegram, etc. The phrase “buy the dip” refers to the market strategy that involves buying crypto assets after they have plummeted, hoping to buy them at a lower price before these assets bounce back and increase in value. The rationale of this strategy lies in the belief that these assets are undervalued, and as a result, their bounce back will be highly profitable.
However, is it really safe or wise to “buy the dip?” This article analyzes the cryptocurrency market and investing during a bear season.
Buying the Dip in the 2022 Bear Market
The current bear market has lasted since November 2021 – now in its ninth month, and there is little assurance of the bear market being over. However, some investors have “bought” the dip at several points in the bear season and have gotten burnt.
“Buying the dip” isn’t done haphazardly; often, investors wait for the crypto asset to fall to support, then buy assets at support, in line with market demand. Unfortunately, the 2022 crypto market has broken three supports, thereby burning investors who have “bought the dip.”
Taking Bitcoin as a case study, after hitting its $69k all-time high in November, it has fallen to a support zone in the $53k region, another in the $41k region, and another in the $29k region. Of course, only a few traders bought the dip at the first support, as they felt it was still overvalued; hence, it didn’t rally for long before dropping to the second support. At this point, many thought it good to “buy the dip,” and there was a struggle between demand and supply from January to May. However, unfortunately, the UST depegging did no favors to the bear market, and the second support was eventually broken. Some hopeful investors also tried to uphold the third support, where we saw a short rally between May and late June; however, the bear market was too strong, and the third support was broken.
Investors who thought it wise to invest in Bitcoin at the $53k support are now 55% down, while those who invested at the $41k support are now 41% down. Worse still, there is no indication that the tides will change soon; instead, the global economy is at a standstill, and experts predict a recession in 2023. So, here begs the question, “is it really wise to buy the dip?”
Buying the dip is only beneficial if you have a long-term mentality because if you buy the dip at the wrong time, your investments may be caught up in the bearish run, and your strategy of buying the lows of the market may be defeated as you may have only bought a mid-point. If you don’t mind your investment maturing in a few years, then buying the dip may do you no harm. However, if you are looking to reap your rewards within a shorter time frame, you may be trapped.
Instead of buying dips at new support zones, you may apply better approaches to investing in the bear market; these include:
- Patience: According to research, typical bearish runs in a financial market last from 9 to 13 months; for context, 2017’s bear market lasted 12 months, while 2022’s is in its 9th month. However, with supply chains distorted, a war, and other economic and political factors, the crypto market could suffer even further; hence, it is beneficial to wait and observe the market’s reaction to global events. It is possible that we haven’t seen the bottom yet, and it may even get worse
- Dollar Cost Averaging (DCA): Instead of Buying the Dip all at once, you may be better off splitting your investment capital over a longer period. For example, if you intend to invest $6000 within a calendar year, you may split this into $500 monthly. Hence, you can approach the market in a safer direction. Hence, if the dip is over, your investment will rise; similarly, if the dip extends further, you will still have more investment capital to buy more dips.
For example, if the investor who bought Bitcoin at $53k only used 20% of their capital, another 20% of their capital at $41k, and another 20% of their capital at $29k, they would be better off than the person who went all in at $41k. Hence, spreading your investments during a bear season is a better approach to profiting off the bear market.
No one can accurately predict the bear market; several events may happen in the course of the year that will worsen the fate of investors; hence, if you are investing in a bear market, you should be mentally ready to wait it out; otherwise, you may get emotional and make rash decisions in the market.