WHAT IS A DIP?
A dip in cryptocurrency is a significant drop in the price of a single or group of cryptocurrencies. It’s basically a sudden fall in the value of cryptocurrency.
“Buy the dip” is a term you use when it comes to dips and investment. It’s about buying the cryptocurrency at its cheapest and selling it when its value has increased. Of course, it doesn’t always happen like this: crypto price decreases can be very random and unexpected. That’s why you need to know about dips in cryptocurrency before planning any investment.
WHY DO CRYPTOCURRENCIES DIP?
There are several reasons why we have Dip in Cryptocurrency:
- A major security breach occurs resulting in hackers stealing a large number of coins from an electronic wallet.
- Hackers manage to hack an exchange resulting in the loss of hundreds or thousands of cryptocurrency coins.
- Countries implement stricter regulations towards cryptocurrencies, reducing demand and dropping prices.
- New digital currencies are introduced into the market, drawing investors away from already existing ones
- Influential personalities within the cryptocurrency industry express their negative opinions about specific cryptocurrency coins.
- News about government taxation and restriction on the use of digital currencies.
- Investors may feel that cryptocurrencies are overpriced and sell off their coins, resulting in a drop in prices.
WHAT HAPPENS WHEN CRYPTOCURRENCIES DIP?
When cryptocurrency prices experience a dip it can be difficult for investors to make rational decisions because every crypto-coin is different. Some coins lose value rapidly while others remain intact even if the market goes into a dip. This is why it’s important to understand what cryptocurrencies are before investing in them.
BUYING THE DIP STRATEGY
This is the strategy you should follow if you own cryptocurrencies that have gone into a dip. It’s basically about buying more of the same cryptocurrency you already have at its cheapest price. This works because it always takes time for prices to go back up and by then, your investment will be worth even more than before the dip happened.
You’re not just buying more of the same cryptocurrency, you’re also reducing your average cost which is an important aspect of investing.
SELLING THE DIP STRATEGY
This strategy works especially well if you own cryptocurrencies that are new to the market or coins that saw their prices increase significantly in a short period of time. It’s about selling the cryptocurrency you bought at its highest possible value and then buying it back later when its price has decreased. This strategy is simple but very risky because cryptocurrencies are volatile by nature, so it’s difficult to determine if their prices will rise or fall after investing in them.