Generally, a dip refers to the act of putting something solid into liquid in a quick manner. Before the rise of cryptocurrencies, when you hear dip, you think of putting your snacks into a tasty sauce. Now, dip means something entirely different in the world of crypto.
In crypto, a dip means a steep reduction in the price value of a cryptocurrency. It refers to a situation where the worth of a coin drops abruptly and most of the time, without any prior warning.
Buy the dip
This is a regular chant among crypto enthusiasts and investors. It urges other crypto investors to buy more of a coin as it drops in value in the hope that the price will go up again in the near future and they will make sizable profits depending on how much risk they take.
Buying the dip is a cryptocurrency investing strategy for some. They focus on only buying coins that have dropped in value in recent times. Buying the dip has its risks and rewards. For one, a coin might never see an upward trend in price. It might just keep going down until the entire value dissipates.
Origin of the phrase
Buy the dip has always been a typical investment strategy for many stockbrokers and financial markets traders, but the phrase got really popular in 2018 due to the general reduction in the price of cryptocurrencies labelled the Great Crypto Crash. From January 2018 to February 2018, the price of Bitcoin dropped by 65%. By November of the same year, it had fallen to 80%.
It was during this year that crypto investors and enthusiasts got an idea of how volatile the crypto market is. However, as Bitcoin and other cryptocurrencies bounced back in multiples in the next year and made unprecedented profits for crypto faithfuls, the term “buy the dip” was popularised.
Limitations of “Buy the dip”
While buying the dip might seem like great investment advice, it is not always so. Coins depreciate and lose value for a lot of reasons. It would be best to do adequate research and analysis before you invest in a coin.
It is not advisable to buy a cryptocurrency just because the price is low. Many investors, especially new ones, fall for this. When in reality, the price might never rise or might take quite a while, as in the case of a prolonged bear crawl. It might not be worth it to tie down your money. Always remember that a coin is not valuable just because it is cheap.
How to properly “buy the dip”
Buying the dip can be a great investment strategy if done right. Here are several actions you can take to manage risk while buying cryptocurrencies for cheap.
Know your lower limits
While buying coins as they drop, it is in your best interest to set a price limit that you will not go beyond. Once the coin drops below that price, you should stop buying and wait till it springs back up.
Be aware of the market
Buying the dip usually works best in a bull market, that is, a market that is seeing a general upward trend in prices. That way, once the price drops, there is some assurance that the price will rise quickly, and you can make your profit in a short time.
Invest for the long term
Patience is key when it comes to investing in anything. To fully reap the benefits of buying the dip, it is better to focus on the long term. Coins that dip might take a while to rise so you make back your money. Also, in most situations, the longer you hold the coins, the more profit you can make from them.
As a new investor, it is important to study the trends and understand what the market says instead of leading with emotions and following the bandwagon. You should always pay attention to the trends that move the market, be it the tweets from a certain billionaire with an electric car company or a sudden pandemic. Try to stay in the know as much as you can.
Investing, especially in crypto, is a long-term game, and you cannot always win. Sometimes, you will make wrong decisions and lose money to the market, and that is okay.
