Is Now the Time to Buy the Dip in the Crypto Market?

As Bitcoin (BTC) fell below $33,000 for the first time in about a year this week, and Ethereum (ETH) and Cardano (ADA) also fell, the crypto market appears to be crashing – or at least experiencing a major correction.

Given the old investment adage of 'buy the dip,' investors may now be looking for a piece of the volatile cryptocurrency market in the hopes that this is a temporary downturn rather than a long-term bear market.

If you’re thinking now is the time to buy, here’s a look at previous trends, some expert opinion and tips on buying if you’re new to cryptocurrency.

Significant monetary losses

Month on month*, the price of Bitcoin has dropped by more than 20% to around $32,000 USD today. It traded for as much as $69,000 in November 2021. A more-than 50 percent drop represents significant losses.

ETH has suffered similar losses to Bitcoin over the last month, falling to around $2,400USD, while Cardano (ADA) has suffered even more, falling by nearly a third (32%) to $0.69USD.

While this does not yet match the severity of the 2018 crash, in which Bitcoin lost 80% of its value, experts warn that things could get worse for those who still hold BTC.

These kinds of losses have prompted the Financial Conduct Authority (FCA) of the United Kingdom to issue repeated warnings to cryptocurrency investors. It states that there are no guarantees of returns and that investors should be prepared to lose their entire investment.

Inflation, recession, and war

Oleg Giberstein, co-founder of automated crypto trading platform Coinrule, believes crypto is experiencing the same stresses as the rest of the economy, which is causing price declines.

"It's not just crypto that's down; everything is down, and the economic outlook for the next 6-12 months is bad," he said. With slow economic growth and high inflation, central banks are caught between a rock and a hard place. As a result, investors are fleeing 'risky' assets such as cryptocurrency and technology stocks."

In terms of whether this downturn is the start of a long-term trend or a passing fad, Giberstein believes the market could remain difficult for up to two years, but that things could worsen during that time.

"Falling below $30,000 leaves bitcoin on the precipice of a key support level," said Sam Kopelman of crypto exchange Luno. If Bitcoin falls below this support level, it could fall as low as $25,000 before making a significant recovery.

“Investors dumped assets across the board yesterday as global stocks suffered the worst day since June 2020. The market is battling the consequences of rapidly rising US interest rates, alongside military conflict in Europe.”

Inflation data released this week by the US Labor Department and the UK's Office for National Statistics will almost certainly have an impact on interest rates and, by extension, crypto prices.

According to Kopelman, reports from the United States and the United Kingdom should provide more clarity on market movements in the coming weeks, but he anticipates a volatile week ahead.

Is it a good strategy to "buy the dip"?

The 'buy the dip' principle is based on the assumption that price drops are temporary aberrations that will correct themselves over time. Dip buyers hope to profit from price drops by purchasing at a discount and reaping the benefits when prices rise again.

Because cryptocurrency markets are volatile, buying cryptocurrencies at any price – let alone a dip that could turn into a long-term trend – is risky. Prices may return to previous levels, but they may also fall further, leaving your investment underwater.

Bitcoin prices, in particular, have shown some seasonality to date, appearing to fall in value to varying degrees in the spring before rebounding in early summer. However, as with any investment, especially in the volatile world of cryptocurrencies, past performance is no guarantee of future results.

"Many a novice investor has been burned trying to 'catch falling knives,'" said Oleg Giberstein.

He advises those who are committed to 'buying the dip' to set a monthly budget for purchasing BTC or ETH and not to worry too much about price movements over the next two years.

Wirex's Pavel Matveev recommends that buyers hedge their bets. "It's critical to diversify your crypto portfolios with different altcoins to mitigate risks," he said.