"Buy the dip, buy the dip, buy the dip!"

It's a popular refrain in the Cryptosphere, every time something takes a nosedive... regardless of whether it's your favorite token, or the entire market.

It seems to me that "crypto maximalists" are almost religious about sharing this particular piece of advice, even while the words sometimes often transcend anything resembling sound investing advice, and instead gets into the treacherous territory of "throwing good money after bad."

I'll be the first to admit that "buying the dip" can be very sage advice, WHEN you actually pause for a moment and examine the nature of the ostensible "dip" you're being advised to buy. What is it, laying there on your desk?

Consider for example a sudden 20% dive in BTC or ETH — currencies that have been around for a very long time and are both supported by long term uptrends — if you have cash free, that might be a great opportunity to buy and profit.

But how about some generally depressed token that's down 95% from its one-time high — which occurred three years ago — and has never given much sign that a any kind of new development leading to a turnaround is in the works?

Many will still shout "buy the dip!" if such a token sheds another 20% from its already depressed state. From where I am sitting, most "falling objects" tend to be guided by gravity rather than what we might call "fanboy hype," once we get beyond a certain point.

Hate to say it, but there comes a time when it becomes obvious that you are simply looking at a losing proposition, and that "buying the (ostensible) dip" is just a way to lose more money. In other words, throwing good money after bad.

I'm not suggesting the turnaround miracles can't happen, but they tend to be pretty rare.

Besides, the math is against you. Remember that a token that has gone from $2.00 to one cent has lost 99.5% of its value, so it now need to increase by 200 times to just get back to its point of origin!

That's a pretty tall order!

And if we go back to the original BTC and ETH example, how would you feel about buying BTC at $100 after a protracted downtrend, with the expectation that it return to its current $20,000-ish price point?

Perhaps what needs to be remembered here is that a "dip" and "a long slow fall off a cliff" are two quite different things!

Of course, it also bears remembering that there's a considerable difference between an investor and a trader. Whereas they might not like my saying so, most traders are guided by their charts and statistics, not by the actual asset they are trading.

Which, in plain English, means they are not as concerned about the overall viability and success of a project as they are with the volatility of the project's token. I get the distinct impression that 50% swings are a good thing, when you're a trader. As a long term investor, it's a good recipe for ulcers!

Maybe I'm old fashioned, but my investing "training" was more based on studying fundamentals than on hype and speculation.

We need to be mindful that everybody has their own motivations and objectives... so when someone starts shouting "buy the dip!" we might do well to start with having a closer look at who is offering that advice!

=^..=

Curator Cat, February 10th, 2024
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