Presently the cryptocurrency market is seeing a turbulent time. The past year had been quite volatile for bitcoins and other cryptocurrencies. Reports have it that bitcoin was hovering around $28,000 in January of 2021 and in April it reached a peak of more than $63,000. Since then it is moving between $29,000 to $48,000. The recent price hovering has echoed the words “buy the dip.” But the real question is, should you really buy the dip in bitcoin and even in other cryptocurrency in India or elsewhere?
What Does It Mean To Buy The Dip In Bitcoin Or Another Cryptocurrency?
Buying the dip is a traditional portrayal used in the monetary markets to define accumulating assets at the time of a short-term price plunge. It does not mostly happen when the market is bearish, and a bearish or bear market directs to an extended period of diminishing prices. On the other hand, a bull market refers to a period of growing prices. Generally, professional investors buy at the time when a price declines to sell and earn profit later when the price of the cryptocurrency boosts.
For instance, if someone wants to buy Bitcoin in India at the current $43,000 level hoping that the cryptocurrency will recuperate after the bearish revision. Considering the price of Bitcoin might return to the $62,000 level, the investor can sell and keep the difference as profit.
Buying the dip as the markets fall can be scary because it is challenging to articulate when the drop stops. Investors of cryptocurrency refer to it as “trying to catch falling knives.” Many investors prefer to wait for the cost of an asset to bottom out before buying the dip. Waiting for a consolidation (low-volatility period) offers them a more reasonable chance of purchasing at the local bottom before reversing the upside.
Risk Of Buying The Dip In Bitcoin And Other Cryptos
There are many risks that an investor might have to face when they determine to buy the Bitcoin dip/cryptocurrency dip.
Most of the risk is related to analytical blunders. There are specific market situations in which buying the dip tends to be more successful. If the investor misreads the condition of the market, then they are going to be more exposed to losses.
Further, buying the dip demands a rules-based procedure so that the investor understands when to enter the position. If the investor does not have regulations underlying their technique — or does not follow their own rules — then the possibility of loss looms larger.
In addition, the volatility of cryptocurrency makes it challenging to determine if, for instance, Bitcoin is going via a small dip or if it is the onset of a larger impact on prices. If the second one is to be considered, buying too early in the crash will expose the investor to a particularly large loss.
Is It A Promising Idea To Buy The Dip In Bitcoin?
Cryptocurrencies are considered fundamentally different from stocks, but technical analysis can benefit cryptocurrency trading as it benefits the share market. An investor might be lured to buy the dip blindly when a token price starts declining, but this might not be the right decision. The drop can keep getting more profound, and this might land you in losing your capital until the cryptocurrency market rebounds.
Other than the prevailing market view, many other aspects affect the price of a cryptocurrency. Hence, you must do your own research before you land up in the box of risks.
Below- mentioned are some of the tips that you can consider whenever you are lured into buying the dip:
- One must look at the bigger picture
- Research and look into the technical charts on your own
- Use and reliable and trustworthy exchange
- Understand the fundamental details behind the ongoing trend
Buying the dip in Bitcoin or cryptocurrency demands good research, as the market is prone to volatility. It is crucial to understand the market and then invest your funds to gain profits in the cryptocurrency market.