To buy or not to buy the dip

CHENNAI: Is this the right time to invest in crypto, is a question that many of us have been thinking about. To most of us, the asset class is something of a curio. We neither see immediate personal utility, so we aren’t true believers; nor do we think that it is some sophisticated scam that it will end badly. Cryptos divides people like no other investment. Some mourn their losses after the spectacular cryptocurrency crash, others will be celebrating what they hope will be an end to this pointless distraction. All, however, are wondering what happens next.

Crypto fans will be hoping that this blistering sell-off is hopefully a temporary setback and wondering whether they should take the opportunity to buy more in the hope of cashing in on an equally spectacular recovery.

Critics of cryptocurrencies, on the other hand, might be feeling vindicated, but they could also be quietly wondering if they should buy some crypto, just in case.

The crypto winter showing no sign of abating, Given the old investment adage “buy the dip”, investors may now be looking for a piece of the volatile crypto market in hopes this marks a temporary downturn rather than a long-term bear market. So, if you’re thinking now is the time to buy, let us weigh all options now.

While this doesn’t yet match the severity of the 2018 crash, in which Bitcoin lost 80% of its value, I feel, say things could still get worse for those left holding BTC. It’s these kinds of losses that have prompted the Reserve Bank of India, to issue repeated warnings to crypto investors. It says there are no guarantees of returns and that people should be prepared to lose everything they invest.

The old adage of buy the dip is based on an assumption that price drops are temporary aberrations and will correct themselves over time. Dip buyers hope to exploit dips by buying at a relative discount and reaping the rewards when prices rise again.

We all know that crypto markets are volatile, so buying cryptocurrencies at any price let alone a dip that might become a long-term trend is risky. While prices may return to previous levels, they could also fall even further, leaving your investment floundering.

If the past is any yardstick, the current dip could bounce back as it did last year, when prices fell before returning to pre-dip levels and even peaking in the autumn. On the other hand, they might not. However, as with every kind of investment, let alone the volatile world of cryptocurrencies, past performance is absolutely no guarantee of future results.

Those committed to buying the dip need 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. It is also vital to diversify your crypto portfolios with different altcoins to mitigate risks.

Cryptocurrencies have recovered from its previous setbacks, too, but here is the proviso. That was in a very different world to the one we find ourselves in today. But, one thing has not changed: don’t invest money you cannot afford to lose.

​(The writer is Founder, India Blockchain Alliance)