Imagine you’re in the kitchen cooking dinner. It’s windy outside, so the room is pleasantly warm with the windows open. The sound and smell of something delicious is bubbling nearby. At the edge of the kitchen sink are your utensils; A bowl, a chopping board, and a knife. You reach for the bowl and accidentally knock the knife off the board. You immediately drop the bowl and reach down to catch it.
At this moment, one of two things could happen. You could catch the knife by the handle and gently set it back on the chopping board as though nothing happened. The other option is that you could seize the knife by the blade, slice your skin, and start bleeding.
This is exactly what it’s like to ‘buy the dip’. Let us explain:
What does buying the dip mean?
‘Buy the dip’ is a common phrase that refers to buying an asset when its price has dropped. It is usually viewed as a short term strategy, but in a market as volatile as the crypto market, it could be applied long term.
Many crypto assets have experienced several price dips especially during the crypto crash of 2018. This is also the same year the term ‘buy the dip’ grew in popularity. At the time, Bitcoin and other crypto assets had dropped notoriously low in price. Many believed it was the end of the crypto industry but a few held on to their crypto assets and even invested on acquiring more cryptocurrencies. Bitcoin later skyrocketed in value and many people reaped the profits.
Buying the dip is like buying an asset on sale. Instead of paying the full price, you could get a great crypto asset for less. If the asset ever regains its original price, you would make a profit. The ‘dip’ in this phrase refers to a drop in the price of the asset.
An excellent example of this is shown with the current price of Bitcoin. In November 2021, one Bitcoin was being sold for around $68,000, but now it’s being sold for around $29,000. If someone were to buy now, and the crypto asset recovers to its previous price, they would profit over $39,000 when they sell the asset.
Buy the dip: Don’t catch the blade.
Although it’s not all fun and games, buying the dip can be tricky, as in the knife example. If you’re not careful and observant, you could badly injure your finances. The thing is that there are no guarantees that the asset will rise again. You could buy the dip, and it would just keep dipping until the asset is entirely worthless.
Many assets are like bad shoes, and just because you put in money doesn’t mean they would bring any value. Imagine buying a shoe that keeps falling apart immediately after you wear it. At some point, you’ll have to throw it away.
Investing with this type of strategy is very risky, but here are four things to look out for that’ll help you catch the handle and not the blade.
4 tips to help you catch the handle
The type of asset you choose: There are crypto assets that are meant to last only in the short term. These assets usually offer no real value other than being trendy. Most tokens or currencies like that typically turn out to be scams, and the few that do not rarely stand the test of time.
Crypto assets like Bitcoin, Ether, etc., have been around for years and have been subject to several dips and booms. They are highly liquid, meaning you can buy them quickly and sell them just as fast. Although there is no guarantee for investing in cryptocurrencies, some crypto assets inspire more confidence than others.
Don’t use the money you can’t afford to lose: If you’re confident about the potential turnover a recently dipped crypto-asset could bring, then good for you. The only advice we have to offer is that be careful with the amount of money you risk investing. Having faith in what you’re investing in is important but investing wisely is also very important.
Determine the dip in price you’re willing to start with: You can prepare in advance for how low the price should drop before you start putting money into it. This helps you be more decisive about your investing activities instead of waiting for it to drop endlessly. So you could decide to wait for the crypto asset price to fall around 10% or more before placing your capital.
Pick an exchange: You can buy or sell cryptocurrencies right now on Valorexchange. You can buy or sell cryptocurrencies across borders on the platform with literally zero charges. Create an account in seconds by clicking here.