Even Bitcoin Experts Say Don’t Buy the Dip Now

Buy the dip‘ has long been a rallying cry for bitcoin investors. But in the recent sell-off, even many seasoned cryptocurrency experts are warning against this strategy unless you’re willing to stick with it for years to come.

In the last three months the price of Bitcoin crashed more than 40% from its record high in November amid relentless selling. Losses were even greater for some other cryptocurrencies.

Technical analysts who study price chart patterns to make market predictions say other assets that have suffered price falls of this magnitude often remain flat months or years later. They fear that Bitcoin could return to the 2018-2020 “crypto winter” pattern if a long-term chart shows sideways movement between $4,000 and $10,000.

The result is that even the notoriously optimistic crypto crowd is warning novice investors not to enter the market now.

“My advice is DON’T do it,” Eloisa Marchesoni, a longtime cryptocurrency investor and advisor, said via WhatsApp message. She says she is concerned about the Federal Reserve’s plan to raise interest rates and the upcoming quarterly expiry of bitcoin futures contracts in late April, both of which could push bitcoin prices even further lower.

Institutional investors often use derivatives markets to hedge exposure to assets such as stocks or bitcoin. This means that there is often volatility around derivatives expiry dates as hedges are adjusted or positions are closed.

Where is the price of bitcoin headed?

Bitcoin, cryptocurrencies, and related blockchain technology are not dead according to crypto advocates, any more than the internet was dead after the dot-com bubble burst. In fact, there is a “brain drain” from big tech employers and banks into the cryptocurrency worldsays Eli Ndinga, head of research at cryptocurrency investment firm 21Shares.

However, when cryptocurrencies look rosy in the long-term, the short-term looks volatile. According to Ndinga, whose firm uses the transparency of the blockchain with its unique bitcoin addresses to track the performance of all bitcoin investments, albeit anonymously, seven out of ten bitcoin investors are currently underwater.

Historically, what market watchers refer to as “capitulation” — the final, cathartic sell-off that marks the ultimate end of a bear market — occurs when that ratio climbs even higher to more than eight in 10, Ndinga says.

The reason: Investors often consider an exit from difficult markets when their original commitment seems threatened. In a bear market, this feeling can build itself up as more and more losses strike fear into the hearts of more and more investors. Ultimately, everyone who is able has given in to panic selling – capitulation.

“Probably consider a five to 10 year time horizon for holding,” says Daniel Polotsky, founder of Bitcoin ATM and financial services company CoinFlip. “If you believe in the project in that timeframe, take advantage of the opportunities when it’s up for sale.”

Fewer bitcoin investors

Certainly, some cryptocurrency investors are sticking to the buy the dip playbook.

“Remember when #Bitcoin was over $60k and you felt like you didn’t have enough?” crypto investor Mike Alfred recently tweeted. “You promised yourself you’d never be so underexposed again. Well, now start keeping your promises.”

However, speculators, even those making promises on Twitter, are notoriously fickle. There are many signs that the “fear of missing out” that fueled the speculative boom in cryptocurrencies has disappeared with the Federal Reserve’s easy-money policies.

Futures market volumes, where institutional investors are placing speculative bets, are well below 2021 highs, with the notional value of all futures traded standing at $1.51 trillion in January, down about 38% from 2, Equivalent to $42 trillion in May 2021. On the other hand, as the charts show, there is little sign that the bulls have an appetite for continued buying, says technical analyst Mark Arbeter.

Most strategists say there is no reason to go back to buying cryptocurrencies.

The time in crypto to “make money fast” may be over, Polotsky says, advising those still interested in the field to settle for “slow money making.”

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Virginia C. Taylor