On July 6, Bitcoin dropped more than 2% after Strategy — a corporate buyer of Bitcoin — disclosed in a regulatory filing (1) that it had sold about $216 million worth of the cryptocurrency.
That’s the second time this year the company has sold some of its Bitcoin reserves — a complete reversal of its former “never sell” approach. Strategy posted a $12.54 billion net loss (2) in the first quarter of this year as the price of Bitcoin slumped.
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Later that day, Bitcoin rebounded 1.8% (3) after President Donald Trump said that he’s “become a big crypto guy” when responding to a reporter’s question about whether Bitcoin might be included in Trump Accounts (4) — the tax-advantaged 503A accounts that launched over the July 4th holiday weekend.
The crypto market is notoriously volatile and hyper-sensitive to news cycles, from world events to regulatory shifts to viral tweets. Sometimes that volatility is short-lived; other times it’s a sign of a coming slump.
But there’s another reason for big price swings.
“Unlike stocks, for example, cryptocurrencies have no cash flow and do not have the ability to pay dividends,” according to Fidelity Viewpoints (5). “And unlike commodities (like gold and copper), they have no industrial use.”
With so much volatility, is it worth buying the dip?
A dip or a Bitcoin bear?
Cryptocurrency is a type of digital currency that’s used for secure financial transactions. It’s not issued by governments or central banks; rather, it operates on blockchain technology and trades on cryptocurrency exchanges.
While Bitcoin is the most common form of crypto (it’s been around since 2009), there are many others, including Ethereum, Litecoin and Ripple.
Buying the dip means buying crypto after its price temporarily drops. The risk lies in how long the dip lasts — after all, you don’t want that dip to turn into a crash.
Over the past 12 months, Bitcoin’s price changed -45.3% (6). Today, it’s sitting around $65,000, while in October it was $125,000.
For investors who already own crypto, the question is whether to hold, add to their portfolio or exit the market. For potential investors, the question is whether to buy the dip.
Buying the dip requires an understanding of market conditions and a high tolerance for risk — and perhaps a bit of luck. Dips might simply be a short-term fluctuation based on the news cycle — like Strategy selling Bitcoin reserves — or it could be an indication of a prolonged bear market.
A dip typically occurs in a healthy market. A crash can occur when market fundamentals aren’t stable. Knowing the difference can help you make smarter decisions, but there’s no guarantee either way. If you’re buying the dip, you have to be willing to take on a significant amount of risk.
Richard Smith, CEO of RiskSmith, told CNBC (7) Select that if you’re investing in crypto, you should have a mindset of holding for five to 10 years.
What to consider before buying crypto
Buying the dip isn’t limited to crypto, of course. Many investors buy stocks when their price drops, with the expectation that they’ll eventually rebound. But since crypto is particularly volatile, many financial experts recommend only investing what you’re willing to lose.
Crypto doesn’t offer the same regulatory protections as registered securities; it’s not insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation.
That doesn’t mean you should avoid it altogether (although more conservative investors may want to). Morgan Stanley (8) recommends “limiting crypto exposure to 2%-4% in moderate to aggressive growth-oriented portfolios and zero exposure in more conservative portfolios.”
Another approach is to use dollar-cost averaging (DCA) rather than trying to time the market. This means you invest fixed amounts at regular intervals, regardless of price — the same way contributions to a 401(k) are regularly deducted from each paycheck.
This way, you benefit from both the ups and downs, with the aim of potentially lowering the average cost over time. DCA can be used with crypto, too — though, once again, there are no guarantees.
Another way to gain exposure to crypto is through crypto exchange-traded funds (ETFs) that hold a basket of digital assets.
Typically, to store and use crypto, you need to create a digital wallet. But with crypto ETFs, you can buy and sell shares on traditional stock exchanges, without direct ownership of crypto assets. Spot EFTs directly hold crypto, while crypto futures ETFs allow you to invest through futures contracts.
If you’re considering buying the dip, it could be worth consulting a financial advisor to see how — or if — crypto should be part of your overall portfolio.
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Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see ourethics and guidelines.
MarketWatch (1); Strategy (2); CNBC (3), (7); Trump Accounts (4); Fidelity (5); Investing.com (6); Morgan Stanley (8)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.