It’s looking a little dark out there.
Bitcoin, ether and the broader crypto market faced another wave of selling Monday, with the world’s most-traded digital currency down another 8% in a selloff that has seen the digital token shed about a quarter of its value in January alone.
‘A Window of Opportunity’
Invariably, investors are hearing calls of “buy the dip” but often not much beyond that.
Analysts advise investors to remain calm, do their research, and work with a reputable exchange.
Igneus Terrenus, head of communications at the cryptocurrency exchange Bybit, said that the pullback “could be a window of opportunity for investors who have been eyeing on the space and waiting for the right time.”
“It’s easier said than done but it’s equally important to stay calm in a bear market as in a bull market,” he said. “In each correction so far we have seen leading digital assets come out stronger and stabilize in a higher price bracket when the turbulences settled, and it’s a lesson for us to be rational about cyclical movements.”
Terrenus said that the first thing for the average investor to consider is the time frame of their investment.
“Short term trading counting on no other factors than the ‘dip’ practically requires a precise prediction of the bottom,” he said. “Investing in quality assets for the long run gives you more buffer for volatility.”
Therefore he said, “an investor should have a realistic evaluation of their own risk appetite before diving into any project and adjust their strategy accordingly.”
“One thing long term investors can take heart in is that no one has ever lost money by holding bitcoin for four years,” he said.
‘Be patient and rational’
Yubo Ruan, founder of Parallel Finance, said that “dollar cost averaging is a great way to buy the dip.”
“Crypto’s volatile nature can make it challenging to know the best time to buy and how much as well,” Ruan said. “Defining a set of rules with a DCA strategy and adding more crypto to your balance sheets when those rules are met is a useful way to ensure you don’t wait for the bottom and miss opportunities.”
“Many platforms offer recurring buys, which are a great way to fully automate your DCA strategy,” he said.
Most importantly, said Antoni Trenchev, co-managing partner at Nexo, “be patient and rational.”
“It takes a little bit of a cool head to successfully buy the dip,” he said. “First, watch. Monitor the market carefully, rushing into a large purchase immediately after the market’s first downward slide, is often the downfall of many newer investors. As I’ve heard some say ‘I bought the dip, but it just kept dipping!'”
Trenchev advised taking the time to read various market analyses and doing extra research on why the market is in a downtrend to determine how briefly or permanently these factors might affect prices.
“Finally, it’s always good to determine your price targets for acquiring positions and selling them thereafter,” he said.
Making the Move
Okay, so now you’ve decided you want to get into cryptocurrencies.
Laura Adams, a personal finance and cryptocurrency expert with Finder, said there are many ways to purchase crypto, including robo advisors, crypto exchanges, and crypto retirement accounts.
“To use a crypto exchange, you must first fund your account by transferring money from a bank account, other crypto exchange, or a digital wallet,” she said. “Then search for the coin you want to purchase and complete the purchase transaction.”
Terrenus said reputable exchanges with a good range of trading pairs and products and services, including derivative options, “are best positioned to facilitate diverse investment strategies.”
“You want to trade on platforms with reasonably high volume and open interest and therefore deep liquidity, and are trusted by a substantial user base,” he said.
You’ll create an account and enter a payment method. At reputable exchanges – Coinbase, Robinhood, Gemini, Kraken – you’ll be asked for information such as your bank account details or a debit or credit card. You’ll then need to prove your identity with a driver’s license, ID or passport. After you’ve been verified, you can start buying bitcoin with your chosen payment method, transferring it to your personal wallet and watching with greater interest as its price fluctuates.
PayPal and CashApp also allow their users to purchase bitcoin.
Depending on how much you want to spend, you can buy one bitcoin, 10 bitcoin or a fraction of a bitcoin. According to its founding protocol, only 21 million will ever be minted. Because Bitcoin can be divided out to eight decimal places, small fractions of a whole can be purchased.
An alternative way to gain exposure to bitcoin’s price is by owning derivative, or synthetic, products.
“When you purchase a bitcoin derivative, such as an exchange-traded fund (ETF), you buy shares of an investment fund that aims to mimic the cryptocurrency’s current or future price,” Adams said. “That may reduce the complexity and risk of storing Bitcoin and make it easy to add this alternative investment to your portfolio.”
However, funds can only be traded when the traditional financial markets are open, she added, and many crypto enthusiasts prefer to own Bitcoin directly to buy or sell the coin 24/7.