Buying the Bitcoin dip by dollar cost averaging your position is a great long-term strategy.
Do you believe in the decentralised future of which Bitcoin is the centrepiece?
If you answered yes, then you should always be buying any dip that you’re presented with and dollar cost averaging into your investment.
As a long term investor who ultimately sees Bitcoin as a dominant asset class one day, dollar cost averaging your position by buying the dip is an extremely savvy investing strategy.
You believe that the price of Bitcoin is going to eventually go up, so should use each Bitcoin dip as a chance to lower your average investment price.
Is buying the Bitcoin dip a good strategy?
As we’ve already gone over above, buying the Bitcoin dip is a good strategy if you believe that its price will significantly rise over the long term.
Just like the name suggests, a buy the dip investment strategy entails lowering your average investment price after an asset suddenly drops in value.
It’s this price drop that is referred to in investment circles as the dip.
The idea is that just as it always does, you will come out ahead after the price of Bitcoin inherently recovers and makes new highs.
Investors who implement a buying the dip strategy worry less about timing the market and simply continue to accumulate on dips.
If you go back anywhere in time on the chart, you’ll see that any strategy that involved buying the Bitcoin dip and holding long term has been extremely profitable.
While for legal reasons it must be said that past performance is never an indication of future gains, the charts say otherwise.
Transferring wealth from dumb to smart money
You could argue that Bitcoin’s recent dip, or what the mainstream media are even calling a Bitcoin crash (lol), is purely a transfer of wealth between what’s known as dumb and smart money.
Although crypto seems like all fun and games on the surface, it's still dominated by the same institutions that exist solely to transfer your money to them.
The smart money uses its size and influence to manipulate prices down to areas where they can find the maximum amount of liquidity.
In most cases, this liquidity is simply retail investors or mums and dads who have bought Bitcoin, read the doomsday predictions in the local paper and then panic sell.
That’s right, liquidity is literally the pain of inexperienced Bitcoin investors.
Smart money such as institutional buyers, are more than happy to scoop up the liquidity that these panic sellers provide, completing the transfer of wealth from dumb to smart money.
The technicals behind this Bitcoin dip
Some basic technical analysis backs up our opinion that buying the Bitcoin dip may be a good idea in the short term as well.
Take a look at the current Bitcoin daily chart below.
I’m a support/resistance trader who focuses on how price reacts around major price levels on the higher time frame charts.
While you can see the dip in question is pretty obvious, you can also see that price is clearly trading within a clear price range between 30 and 40K.
With price currently at the 30K support zone acting as the bottom of our range, it’s healthy to see buyers stepping in and soaking up that sweet liquidity we talked about above.
Taking a long term investment approach, the technicals of Bitcoin actually look extremely healthy.
We all understand that a vertical price rise is unsustainable and this 50% pullback into previous resistance turned support looks ripe for a base to form.
Final thoughts on buying the Bitcoin dip
If you believe that the price of Bitcoin is going to eventually go up over the long term, you should use each Bitcoin dip as a chance to lower your average investment price.
To learn why BItcoin is a good long term investment, check out our always evolving guide to Bitcoin.
Best of probabilities to you.
Direct from the desk of Dane Williams.
Why not leave a comment below that explains why you’re buying the Bitcoin dip? All comments that add something to the discussion will be upvoted.
This daily market analysis blog is exclusive to leofinance.io.