At the time of writing, Bitcoin is sitting well below $10,000, around $7,800. Could this be the sign of a Bitcoin crash?
Even though many cryptocurrency analysts, myself included, were discussing the possibility of altcoins taking over some of Bitcoin’s market dominance, what happened was quite the opposite.
After a brief moment, where altcoins did see some impressive gains, the market came crumbling down. BTC crashed over 20% and some altcoins even further. Not so much of an altcoin season, was it?
Now, investors and traders worry Bitcoin will remain below $10,000 for the much of the remaining year year.
Will Bitcoin recover?
The short answer is yes, Bitcoin should recover and break new highs. The conundrum, of course, is when.
If we believe the analysis of PlanB, the analyst who applied a stock-to-flow model to Bitcoin, or other crypto-enthusiasts like Trace Mayer, who created the Mayer multiple which measures if it is a good time to buy or sell Bitcoin, we shouldn’t worry too much about short-term price-action.
Instead of following doomsday scenarios or overly optimistic ones, it’s much simpler to see these crashes as opportunities to increase holdings.
Why not take these opportunities to scoop more Bitcoin at a discount (aka, buying the dip), instead of worrying when it will recover?
Of course, taking full advantage of a Bitcoin market crash requires solid planning, strategy and a set of conditions to be met.
What to do during a Bitcoin crash?
Buying the dip refers to purchasing an asset after it has declined in price. It has different contexts depending on the situation in which it is utilised. According to Investopedia, some traders may say they are buying the dip even if an asset is in a long-term strong uptrend, in the hope the uptrend continues after the minor dip or drop. Others may use the phrase when no uptrend is present, but they believe an uptrend may occur in the future.
Buying the dip may work if investors are disciplined enough to not fall into the temptation of buying at the wrong time — for instance during long bearish periods.
In order for the below strategy to be effective there is, however, an important requirement.
One must have cash available to make new entries when the price dips below certain thresholds. To buy the dip, investors and traders must first have enough cash at hand to make an effective purchase.
However, you should always consider that price can deepen even further.
Dollar cost averaging (DCA)
The idea behind dollar cost averaging is simply to buy Bitcoin on a recurrent basis. Usually, advocates of the above strategy prefer to set certain days to make purchases and stick to their schedule – almost like a direct debit. Purchases are made at roughly the same hour so that the asset is always bought independently of the short-term price.
This “dollar cost averaging” strategy is regarded as one of the safest, as it helps investors and traders to get less emotionally connected to their investments. It’s way easier to buy a bit of something every week than a lot of something in a single transaction.
If you apply an aggressive DCA strategy to the periods Bitcoin crashes, by having cash available at hand, it’s possible to make steady hourly or daily purchases not worrying about Bitcoin short-term fluctuations.