Bitcoin Soars Again (Why Crypto Dips Are Merely Anomalies)
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If I had to give you the best piece of crypto advice I could in only one short sentence, I would just tell you, “buy the dip.”
Anyone who is familiar with the ebb and flow of markets naturally grows wary of big dips and any signs of instability. In stocks, 5% and 10% volume dips are nearly apocalyptic. That kind of thing gives day-traders grey hair. I believe there are still too many people applying stock market logic to the movements of crypto. Though they share many of the same qualities, they are definitely not the same thing.
Crypto Value Actually Means Something
Well, so does stock value, but not as most would understand it. Just as a stock price is primarily determined by how much demand there is for it, ultimately, a unit of worth in the stock world does not, in and of itself, translate to value. In fact, the stock market is somewhat predicated on the idea that it’s not value that’s being traded at all, but the potential for value the company will provide in the fiat world.
This is not the case with crypto, where the worth of a unit of any said currency actually is worth something independent of itself. It is, of course, a currency. A currency which is based on some kind of construct that provides a service. Unlike a stock, where the value is completely amorphous and tied to the hypothetical worth of a company’s performance, crypto stands apart as worth by itself.
What does this mean for its value?
Simply that you can’t look at a dip, even a large one, and make claims like “well, that’s it, crypto’s done.” Bitcoin alone has been declared “dead” by more business and money experts than you can shake a stick at, and yet it keeps soldiering on, with no real signs of stopping. Much can be said for almost every alt-coin: if they have a solid foundation (meaning, they are actually based on a system that is producing value), they are valuable. Because cryptocurrency value is tied so closely with supply and demand, a dip is merely an indicator that at a given time, there was more supply than demand. If the platform is worth something, of course the demand will be there and the coin will bounce back. It’s not rocket science, but a lot of the crypto and trading community treats it like it is.
A Dip is a Trader’s Opportunity
We’ve all heard the term “buy low, sell high,” but the sight of a large dip sends shivers down even the hardiest of spines. Again, this is more a holdover from the stock market world, where a large dip in a stock usually occurs because of a scandal with a company, or because the company’s quarter profits are released and look grim, so people pull out. You have to realize that even though “news” can and does fluctuate the worth of crypto, it does not impact its true monetary value, because the system still stands solid and the demand is still there.
Unless there’s some obvious reason not to throw yourself at a coin when it dips (NEO, ahem), you can pretty much feel confident that your investment will be sound. You just can’t expect to always catch a dip when it’s at its lowest. This is the philosophy I follow and it hasn’t screwed me over yet:
Let’s say you have x-amount of a coin, and it dips hard. Your first instinct might be to pull out and save face. That’s stupid. Never take a loss, there’s no reason to if you followed the golden rule of crypto: never put in what you’d be willing to lose anyway. So there’s no risk, right? So don’t pull out, no matter how grizzly it looks. Instead, buy 25% of your total in that coin. You have 1000 of a certain alt-coin and you see it take a sharp dive? Watch it, see if it settles a bit or slows its descent, and then scoop up 250 of that coin at the reduced price. If it happens to dip a bit more, well, it’s not the biggest deal in the world, and once it goes up, you’ll be riding a 25% tailwind, and it will inevitably go up if it’s a reliable coin.
Why only 25%? Because it’s smart money that hits a sweet spot. 50% is overdoing it, especially if it happens to fall over 10% more than you expected after the dip. For coins like Bitcoin and Ethereum we could be talking about substantial and pointless loss at that point. Anything less than %25 would be too weak to benefit off the dip.
I would say, to test the waters, the next time one of your favorite coins drops in value by over 10%, drop 25% of your total amount immediately into that coin during the dip, and just HODL a week. Thank me later.
Crypto Dips Aren’t Really Dips
Why are dips almost guaranteed money? For the reasons I listed above. When you’re talking about a digital platform that actually has economic use and isn’t just numbers on a screen (like a stock), a dip is just a byproduct of supply and demand. Well, how do you know a coin will always be in demand and isn’t just face-tanking? It helps to know your coins and invest in platforms you understand and believe in. Pretty good idea. But barring some monumental bit of news, most coins aren’t just going to lose true market value overnight, because their value is connected to a palpable platform. In other words, dips are just the market kind of righting itself, and should not be feared. In fact, pulling out during a dip just makes the dip worse for other traders (or better if you look at it from my perspective – we’ll eat up those cheap coins all day!)
So next time your finger is on the panic button, take a breath, don’t buy into the hype, and maybe even risk a few bucks on some “reduced price” coins. If we’re talking Bitcoin, any dips from here on out should honestly be treated as merely discounted coins, because we know the market will right itself. Bitcoin is gaining steam daily around the world as more and more businesses and services adopt its use. Add to the fact that it’s becoming more mainstream in general, and that means the demand will go up. Dips are just market corrections and periods of slow demand: this just translates to “buy now” for wise traders.
We’re likely right around the corner from $5000 Bitcoin, but if there’s another dip and it ventures back into the >$3500 range, scoop it up. Bitcoin is going to hit and stabilize at $5000 in the not too distant future, and you don’t want to be “that guy” that has to buy it at like $5120 while others snagged it at 20-30% off.
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