“Buy the dip” is a simple way of saying buying when the price is falling, with the hope that it will soon rise again. It sounds easy, but it’s not always a good idea! Let’s break it down.
When should you “buy the dip”?
1. The market is in a long-term uptrend:
• If the entire crypto market is in a bull market, then dips can be good buying opportunities.
• For example: In 2020-2021, Bitcoin and Ethereum experienced price drops but then soared. If you bought when the prices dropped, you likely made a significant profit.
2. The asset you buy has real value:
• Choose coins with good fundamentals and long-term potential, such as Bitcoin (store of value) or Ethereum (smart contract platform). Don't buy coins that only rise because of hype.
3. Price drops for temporary reasons:
• If the price drops only due to a short-term bad news (for example, Elon Musk tweets), but the fundamentals of the coin remain strong, then you might consider buying.
When NOT to 'buy the dip'?
1. The market is in a long-term decline:
• If the whole market is in a deep decline (bear market), then buying in could lead to further losses. Prices could continue to drop without a stopping point.
• For example: After Bitcoin peaked at 20,000 USD in 2017, the price fell below 4,000 USD in 2018. Anyone who bought the dip during that period was 'frozen'.
2. The coin has serious issues:
• If the coin drops in price due to a major project failure, scam, or the development team giving up, then don't buy! For example, LUNA in 2022 – dropped from 100 USD to nearly zero.
3. Emotional bottom-fishing mindset:
• Don't buy just because you think the price is cheap. It could get much cheaper!
The benefits and risks of 'buying the dip'
Benefits:
• Get a better price: Reduces investment costs, increases profits when prices recover.
• Seize the opportunity: You can make significant profits if you guess the timing correctly.
Risks:
• The price may continue to drop: You can never be sure where the true bottom is.
• Unstable mindset: If you buy and the price continues to drop, you may panic and sell at a loss.
• Choosing the wrong asset: Buying coins without value can lead to total loss.
How to 'buy the dip' smarter?
1. Dollar-Cost Averaging (DCA):
• Instead of using all your money to buy immediately when prices drop, spread your capital and buy gradually.
• For example: If you have 10 million, buy 2 million at a time over 5 weeks. If the price drops further, you still have money to buy more.
2. Only buy when you understand the reason for the price drop:
• Before buying, find out: Is the price dropping due to short-term bad news or because there are major issues with the asset? If it’s a major issue, stay away.
3. Don't use all your money to 'buy the dip':
• Only allocate about 20-30% of your investment capital to buy the dip, keeping the rest for contingencies.
4. Choose reliable assets:
• Focus on strong fundamental coins like Bitcoin, Ethereum. Don't chase after small-value coins.
Real-world example
Success:
• In 2021, the price of Ethereum dropped from 4,000 USD to 1,700 USD in June. If you bought the dip at this price, by November 2021, ETH had risen to 4,800 USD – a profit of nearly 3 times.
Failure:
• LUNA's price fell from 100 USD to 10 USD in 2022. Many thought the price was cheap, but it continued to drop near zero as the project went bankrupt. Those who bought the dip lost everything.
Conclusion
'Buying the dip' is not always right, but if you:
• Choose the right timing (when the market is growing).
• Choose the right asset (with real value).
• Invest according to a plan (divide capital, don't use all your money)...
...it could be a good opportunity. Remember: Don't rush, don't follow emotions, and always keep some money for contingencies!