Since early 2022, the crypto dip has remained the order of the digital currency market. Several crypto investors and analysts can only hope for a positive move soonest, given the unforeseen bottoming of the market.
Although the market projected some bullish actions months back, the recent crash of the FTX exchange rekindled the bearish trend. Now the market appears more frightening than expected.
Considering the present market look, whats causing the crypto dip, and what should be investors' next course of action? Follow this guide for more information.
What Is Crypto Dip?
Crypto dip describes the price decline of digital tokens, or simply the crypto market crash. On many occasions, crypto experts would encourage investors to buy the dip crypto (purchasing digital tokens when the prices are momentarily down).
In the crypto market, investors implement different strategies during price declines to profit regardless of the volatile asset purchased. One of these strategies is to buy the crypto on the dip.
Generally, when a market goes through a correction phase, the price decline percentage stays between 10% and 20%. However, investors target the larger price change for the crypto market, since cryptocurrencies are more volatile than the equity market.
Crypto investors would place a benchmark at a 20% decline against the equity market correction. This is an investment strategy that many investors follow after studying the past performance of assets in the market.
Let’s cite an example to explain how crypto dip works.
Example of crypto dip
Let’s say BTC trades at $20,000, and you intend to purchase $1,000 worth of the token. Although your equivalence in BTC would be 0.05, you’re sure of a thousand dollars in your BTC wallet.
If after 6 months Bitcoin surges up to $70,000, which is a 350% gain from its initial price of $20,000, your BTC wallet would then hold $3,500 after those 6 months.
Now, in the case of a crypto dip, BTC slumps to $15,000. Purchasing $1,000 worth of the coin at this price will give you 0.067 BTC. In another 6 months, BTC spikes to $70,000, approximately a 466% increase from its initial price; you now have a little over $4,666 in your BTC wallet.
Buying the dip has added about $1,166 to the supposed $3,500 at BTC's initial price.
What Are The Causes Of Crypto Dip?
When there’s a price decline, many people ask what’s causing the crypto dip. Several factors bring about a crypto dip. Unlike conventional investments that rely on shares influences and business performances, cryptocurrencies depend on demand and supply.
Their prices move in line with investors’ speculation, determining possible rise or fall. That’s why the market records sudden volatility in digital token prices, even within two hours.
Also, the globally increasing cost of living and inflation force investors to maximize their risk management. So, they end up selling off good portions of their crypto holdings.
So, to answer the question of why is crypto dipping, here are additional causes of crypto dip, particularly in recent times.
- The rumor that the Russian nation banned the operation of digital currencies in the early period of 2022. But after the Ukraine invasion, crypto exchange transactions in Russia were eventually called off.
- The crash of the renowned crypto exchange FTX in November 2022 occurred after Binance withdrew from purchasing the platform.
- The freezing of transfers and withdrawals by a crypto lending platform, Celsius Network, in June 2022. The occurrence was a result of the tight financial condition of the platform at the time.
- The world’s leading crypto exchange platform, Binance, also suspended the withdrawal of funds in June 2022. The platform's CEO, Changpeng Zhao, cited that the move was necessary due to the backlog from a stuck transaction.
Possible Dangers Of Crypto Dip?
There are certain benefits and dangers of a crypto dip. It all comes down to the understanding of the crypto market and the level of research made. While several crypto experts would advise investors to buy the dip crypto as a good strategy, they must be sure of a reversal soonest.
Digital currencies are a volatile asset class. So, purchasing them anytime could be risky, especially during a dip that promises no end. Although it's possible to see a reversal shortly, leading to good profits, your investments could get underwater if prices plummet further.
In a nutshell, the danger of dip crypto lies in the uncertainty of the future result. No one can tell when the next bull run will occur unless you buy the dip crypto as a long-term investment strategy.
Pros And Cons Of Crypto Dip
There's a bright and bad side to a dip in crypto. Let’s consider them below.
One of the effective ways to reduce the average cost of a token is to buy the dip crypto. When its price eventually reverses, it exponentially multiplies your returns.
Crypto investors can attest that purchasing a token at a very low price gives psychological ease. In that state, you can be confident that prices won't get lower than you've predicted.
You can miss out on additional gains if the token price falls beyond your predictions.
No recovery guarantee
It’s impossible to tell whether a token will record a persistent uptrend after a dip, especially for new cryptocurrencies. Buying such a dip crypto could leave the investor losing out completely.
Inability to tell reversal growth rate
Cryptocurrencies can be very deceptive because it could be impossible to tell how much growth to expect. So, after purchasing the dip crypto, you may get a little return on investment.
What Should Investors Do During Crypto Dipping?
It could be tricky to decide what action to take when crypto is dipping. You can't predict whether the price drop will be a short while or a long-term trend. Secondly, huge dips could indicate a red light for a crash.
However, there are certain things you can do to evade the potential risks.
Deduce the amount of money you can afford to lose
First, invest an amount that won't break your heart if lost. Also, wisely and carefully choosing a cryptocurrency to invest in will help you avoid the pressure of possible loss.
Always recall that these tokens are volatile.
Always remember that there are times for huge gains and losses with crypto trading and investment. This mindset will help you determine what cryptocurrency to invest in and how much and time to invest.
Identify the cause of the dip.
Cryptocurrencies have yet to be globally adopted. So, their place in the world’s economy is still questionable. Governmental actions, unanticipated events, and manipulations can send their values plunging. This circumstance makes it crucial to figure out the driving force of the dip.
Best Crypto To Buy During Current Crypto Dip
A few of the best digital tokens to purchase amid the current crypto dip include:
Bitcoin has maintained steady growth since its inception in 2009 and currently stands as the largest cryptocurrency worldwide. Although its price is down by over 75% from its all-time high, experts expect a gradual, token recovery in the coming months.
Moreover, its wide adoption makes it a promising token for both present and potential investors.
Ethereum, the second-largest digital currency, also shows positive signs of being a good investment asset. Even though its price has dropped significantly over the past months in 2022, experts vision a profitable investment experience with this token.
Similar to several other digital currencies in the crypto market, Solana has displayed multiple price swings. Presently, the coin trades at $13.24 at the time of writing, about -94.93% from its all-time high.
Nevertheless, the imposing utility of this token makes it a sustainable option for any investor.
Another promising token on the crypto market is the D2T coin. D2T is specially designed to help traders to develop improved trading strategies through its strategy builder and social tools features.
This token is established on the Ethereum blockchain network, guaranteeing its authenticity and longevity.
FAQ-Common Questions And Answers On Crypto Dip
Find more clarity about the concept with the answers below.
What does crypto dip mean?
A dip in cryptocurrency occurs when the value of a crypto asset falls. This is notable with the price drop of the token in the crypto market. By using a price chart, a crypto dip will show as a valley on the chart.
Crypto dip, what causes it?
Many factors can cause the crypto dip, such as protocol hacks, overall bearish trends, and overload or outages of the crypto network. Also, regulatory changes or bans, government policies on crypto and its related use, and bad news on the crypto coin would trigger a crypto dip.
Should investors buy the dip?
Buying crypto dips and holding the tokens long-term could be a good idea for massive profits. This will happen once the average price returns to the previous levels or is even higher in the future.
However, due to crypto market volatility, the value could drop further, causing you to suffer more losses with your investment choice.
When should an investor buy the dip?
Giving an accurate prediction for the different timing of the markets to know when to buy the crypto dip is tricky. But buying the dips could be worthwhile as long-term investments.
Also, you could buy the dip after properly researching the assets and when you have extra cash to spare.
What are the signs of a dip in crypto?
A dip in crypto is when the price declines, causing the asset's value to drop drastically. In some cases, the price of the cryptocurrency could return to its previous level and above it following a market correction. But, sometimes, crypto dips may linger, cutting off the possibility of making profits from the token's value.