Buy the dip! Buy the dip! You definitely have heard those words a lot these days. While some may feel indifferent about it, many seem to be on a panic frenzy, whereas for others like the experienced crypto investors, all they see is the yellow traffic light about to turn green. The cryptocurrency market has taken a huge hit in recent weeks, just like most foreign exchange markets do. The high volatility of cryptocurrency can be considered as one of the major causes. So why is the dip happening now? Has there been other times when it has happened? Well, stick with us to unravel the gist of the matter.
There has been significant price jumps and dips in bitcoin over the years. Here’s a few of them.
In 2011, the price of Bitcoin rose from $1 in April to a peak of $32 in June, a whopping gain of 3200% within three short months. The ascent was followed by a dip in crypto markets and Bitcoin's price dropped to $2 in November 2011.
In 2013, Bitcoin's price at the start of the year was at $13.40 and then shot up the charts, reaching $220 by the beginning of April 2013. That swift increase was followed by an equally rapid descent in its price and then fell to $70 in mid-April. In December 2013, the price spiked to $1156.10 but dropped to $315 at the beginning of 2015.
In December 2017, Bitcoin was worth $18,000 and then plummeted to $7,000 in February of 2018 and then went even lower to $3,000 in December 2018. From here, we can see that dips have occurred over the years, now let’s examine why, using the bitcoin dip in 2018 as a case study.
What caused the bitcoin dip in 2018?
The bitcoin and cryptocurrency market received a hit in 2018. From the price of bitcoin nearly hitting $20,000 in late 2017, it plummeted in early 2018, although hitting a few plateaus, to a little over $3,000. So what happened? To understand what happened, we have to look through some factors.
FOMO and FUD
FOMO (Fear of Missing Out) element was a big deal as bitcoin became an international fever and everyone didn’t want to miss out, jumping on the trend even when they hadn’t fully understood it. Now, because they didn’t understand it well enough before jumping on the trend, when FUD (Fear, uncertainty and doubt) set in, they panic-sold and this had an incidental cause in the Bitcoin price drop influencing the dip.
Early days insecurity issues
Bitcoin has faced a lot of insecurity issues over the years with three significant hacks of crypto companies in 2014, 2016 and 2018 resulting in significant losses, with the most recent being $534 million reported by Japanese exchange, Coindesk. This, alongside a subsequent clamp down by governments did no favours to the market and saw bitcoin drop to about $10,000 and hovered there for a while.
Lack Of Institutional Support
The lack of support from top financial institutions like Wall Street, JP Morgan and the SEC affected the price of bitcoin and caused a drop from $10,000 to $6,000.
Internal Battles
Internal battles which caused the formation of bitcoin cash and further split bitcoin cash into two sects affected the crypto market, causing the price to drop to about $3,000 in December 2018, less than 80% of what it was at its peak in 2017.
Why is A Dip in Bitcoin Happening Now?
This quote by Warren Buffet would be a great openng remark "Never invest in what you don't understand". These words should be taken by everyone as a call to action to learn more about cryptocurrency, and not panic. A lot of people do not understand the market cycle of crypto so they don't know exactly how the market works, and they just act on emotions or a desire to get rich quick.
Bitcoin reached a peak of over $63,000 in April this year, but it's fallen dramatically since then. On Sunday, it dropped to $33,650 -- its lowest point since early February, and a 47% drop from its recent high. The price has risen slightly this week -- according to CoinMarketCap data, at the time of writing it sits at $35,328.
One of the reasons we can easily point at for the current dip is the FOMO and FUD (Fear, Uncertainty and Doubt) factor. Now, because of the FOMO factor, many of us want to buy Bitcoin and invest in cryptocurrency which is a good thing. However, we need to be ready for the normal consequences of overbuying a cryptocurrency which is that when an asset is overbought, the chances are the market will go through a correction. However, with the FUD factor thanks to the wide news spread on social media and various misconceptions, the downtrend we’re seeing now is not out of the ordinary. A new investor who makes no research or has proper knowledge will jump in from the top and that’s where they get burnt.
Another reason is the environmental concern Elon Musk raised in his tweet where he pointed out how much energy bitcoin mining concumes due to bitcoin's high carbon footprint. This led the renowned investor to suspend Bitcoin purchase and reverse his previous announcement where he mentioned that his Tesla cars could be sold in exchange for Bitcoin. According to Musk, "Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment." However, the renowned investor went on to say that Tesla would hold the Bitcoin it owns until mining transitions to more sustainable energy. Looks like Elon Musk wants to practice the HODL trading strategy.
One more reason for the dip is the recent cryptocurrency regulation in China. While the Chinese authorities have restricted cryptocurrency trading in the country for years, a recent Chinese crackdown tightened regulation even further, making it illegal for institutions to offer any form of crypto service.
What Should I Do During A Dip in Bitcoin?
Now that the dip has happened, what then should you do?
Some fear the sell-off reflects a drop in confidence in the world's first and largest digital currency. Others have seized the opportunity to buy more.
If you’re a long-term Investor, then the answer for you is HODL! No one who held bitcoin has ever lost by holding it. If you’re a short-term Investor, the market wouldn’t favour you much if you decide to HODL and you’ll lose if you bought at a higher price than what the price currently is. However, you can decide to go with short term trading strategies like swing trading or day trading. This also guarantees a level of profit for you when you understand the dynamics.
Conclusion
The dip in bitcoin recently has some people shaken and has made some ready to make profit by buying low and holding it to sell when the market stabilizes again. One thing is for sure, you only lose when you panic-sell with bitcoin. Hodl and you’ll get your reward later, be it in a month, two months or however long it takes. You don’t lose with Bitcoin.
Disclaimer: The content of this article is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice.
The cryptocurrency market has taken a huge hit in recent weeks, just like most foreign exchange markets do. So why is the dip happening now? Stick with us to unravel the gist of the matter.
