Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.
Estimated reading time: 2 min
Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.
What are the key risks?
1. You could lose all the money you invest
The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets.
The cryptoasset market is largely unregulated. There is a risk of losing money or any cryptoassets you purchase due to risks such as cyber-attacks, financial crime and firm failure.
2. You should not expect to be protected if something goes wrong
The Financial Services Compensation Scheme (FSCS) doesn't protect this type of investment because it's not a 'specified investment' under the UK regulatory regime – in other words, this type of investment isn't recognised as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker.
The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm or Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA regulated firm, FOS may be able to consider it. Learn more about FOS protection here.
3. You may not be able to sell your investment when you want to
There is no guarantee that investments in cryptoassets can be easily sold at any given time. The ability to sell a cryptoasset depends on various factors, including the supply and demand in the market at that time.
Operational failings such as technology outages, cyber-attacks and comingling of funds could cause unwanted delay and you may be unable to sell your cryptoassets at the time you want.
4. Cryptoasset investments can be complex
Investments in cryptoassets can be complex, making it difficult to understand the risks associated with the investment.
You should do your own research before investing. If something sounds too good to be true, it probably is.
5. Don't put all your eggs in one basket
Putting all your money into a single type of investment is risky. Spreading your money across different investments makes you less dependent on any one to do well.
A good rule of thumb is not to invest more than 10% of your money in high-risk investments.
If you are interested in learning more about how to protect yourself, visit the FCA's website here.
For further information about cryptoassets, visit the FCA's website here.
Buying a crypto dip means getting crypto at a discounted rate. However, not all dips recover to previous prices – some continue to lose value. This guide explains what happens when the market crashes and everything you need to know about buying the crypto dip.
What is a crypto dip?
A crypto dip is when a cryptocurrency declines in price. Quite often, a dip is part of a healthy market cycle when a price briefly decreases during an uptrend.
Depending on the time frame, a dip could refer to a drop in price between 0.01% to around 30%.
In the stock market, a dip would be classified as a decrease in price anywhere up to 10%. Between 10-20% is a correction, and anything above 20% is a bear market.
However, since crypto is more volatile, a decrease of up to 30% is usually referred to as a dip, with anything beyond that signifying a bear market. Sometimes, dips are also referred to as pullbacks.
What happens when the crypto market crashes?
When crypto markets crash, the price can do one of 3 things. It can continue trending downwards for some time, quickly recover, or consolidate at the lower price. The 3 main factors that can influence crypto prices’ direction following a crash are:
Broader economy.The crypto market often follows the stock market. Crypto prices may recover quicker if the stock market continues performing well. However, if stocks crash, crypto prices could crash further.
Cause of the crash. Sometimes, crypto prices can crash due to something minor, such as a rumour. Other times, severe issues like the collapse of the FTX exchange can cause a crash. When minor issues cause them, they can correct quicker. However, more severe issues cause the prices to continue to downtrend following the crash.
Upward trends. If crypto prices have been uptrending for over a year, having climbed significantly, a crash could illustrate that buyers are exhausted, signifying the beginning of a bear market.
Should I buy the crypto dip?
Sometimes we get so caught up in the hype that we forget to stop and reflect on where the markets could be headed. While a crypto dip can provide a better entry point, it’s important to remain aware that the price could continue decreasing.
Moreover, some cryptos never recover from their dips. For example, after the Securities and Exchange Commission (SEC) sued Ripple – the creators of XRP – in 2020, XRP has been unable to reclaim its 2018 all-time high – even though crypto had a bull run in 2021.
However, provided you remain rational and only invest what you can afford to lose, buying the crypto dip could prove a profitable investment in the long run.
How to buy the crypto dip
When it comes to buying crypto, everyone does it differently. Every investor has a different risk tolerance, time scale and investment strategy. Nevertheless, some things are constant in any good strategy.
If you’re considering buying the dip, it helps to set some parameters first:
Choose the cryptos you want. First, identify the cryptos you’ll buy when a dip occurs. Do this beforehand, identifying ones with solid fundamentals and sustainable tokenomics.
Set your rules. Start by deciding when you’ll buy (e.g. each time Bitcoin drops 5% in one week). Next, define your exit strategy; when will you sell? Will you cut your losses if the price moves against you? Or will you HODL (hold on for dear life)?
Plan how much you will buy. So that you don’t risk more than you can afford to lose, choose how much of the dip you’ll buy in advance.
Dips sometimes cause emotional responses that often lead to poor decision making. However, following a predetermined set of parameters like the ones listed above can help you remain disciplined and make better choices.
Is crypto on sale for a limited time?
If a crypto dips in price, it might feel like a fantastic time to scoop up the coin you’ve had your eye on while it is “on sale”. Sometimes, this is the perfect time to jump in. For example, cryptos dip as much as 30% in bull runs before continuing to uptrend.
On the other hand, you may be disappointed to find that after the dip, the crypto keeps going on sale for less. One day, it may even cost close to $0!
To identify whether a crypto is on sale or if it may be losing much of its value, you must consider the cause of the dip. If something serious caused the drop, like the cryptocurrency being hacked, it might be best to stay away for a while.
However, perhaps the dip was caused by panic selling or fear, uncertainty and doubt (FUD) that lacked real substance. In these cases, the price will probably correct shortly after.
Alternatives to buying the dip
While buying the dip can give you better entries on the crypto you buy, the crypto’s high volatility means buying the dip comes with risk. For example, you may buy after a 5% dip, only for the coin to plummet another 60%. On the other hand, the crypto may explode without dipping, causing you to miss out on buying.
To combat these issues, there are 2 other alternatives you can use:
Dollar-cost averaging. Choose a crypto you want to buy long-term, then purchase a set monthly amount. This reduces volatility risk and smoothes out your entry price.
Rotating profits. This mainly works in bull markets. When 1 of the coins in your portfolio increases in value, take some profits and buy more of a coin that is yet to increase. With this method, you aim to “ride the wave” on 2 coins instead of 1.
Buying the crypto dip vs dollar-cost averaging
When buying the dip, you only buy when the crypto price has dropped, but with dollar cost averaging, you buy regardless of price.
Initially, it might seem that buying the dip is the logical thing to do since you can buy it at a lower price. However, typically dollar-cost averaging tends to beat buying the dip.
This is because buying the dip relies on perfectly timing the market every time. In contrast, dollar-cost averaging enables you to buy consistently, providing better entries over time.
Should I wait till the dip is over to buy?
While there are countless different ways to buy the dip, the main thing is that you choose 1 approach and stick to it. Some investors may wait to see signs of a reversal, such as a “bullish engulfing candle” on the crypto price charts, while others may buy each time a crypto drops a certain amount.
A bullish engulfing candle is a movement on a candlestick price chart where the size of a green candle is greater than the previous red candle at a key area of support. This is a sign of bullish momentum since it illustrates a high level of buyer interest.
The issue with waiting until the dip is over is that prices move very quickly and you might miss out on the discounted price. Therefore, if you are buying the dip, it may be best to do it straight away.
However, even after a dip the price may keep falling. To solve this, you could also buy the dip at intervals. For example, you could buy a little more each time the price drops by 5%.
Just remember that investing in cryptocurrency carries a high risk. So whichever approach you take, only invest what you can afford to lose.
How long do crypto dips usually last?
Depending on the cause of the dip, they can last from a couple of hours to months, with bear markets even lasting years.
Sometimes dips are caused by a large sell order impacting a coin’s price. Providing the crypto has a high enough trading volume; these dips are generally corrected relatively quickly.
Other times, fundamental factors may have changed. A hack or exploit may have occurred, or central banks may have hiked interest rates. Generally, fundamental changes can lead to longer lasting dips in the crypto markets.
Is crypto in a dip now?
Crypto is currently in a bear market. Despite creating new highs recently, it seems the markets had topped when Bitcoin approached $30K, and they are now on the way back down.
The most likely outcome for crypto is that it will range between $20K and $30K for the next year until the Bitcoin halving triggers the next bull market in 2024.
Pros and cons of crypto earn accounts
Pros
Dips provide lower entry prices.
Enables you to take advantage of market crashes.
Cons
Requires skill to “time the market”.
You can miss out on pumps if the price doesn’t pull back first.
The price can keep falling following a dip.
Bottom line
Buying the dip allows you to take advantage of low crypto prices. However, even seasoned traders struggle to predict and forecast where the market will go next.
A simple “dollar-cost averaging” strategy may provide more consistent results for most investors. However, this still carries a level of risk, so only invest what you can afford to lose.
Frequently asked questions
Before buying a crypto dip, it is important to establish a strategy. However, a good rule of thumb is to first ensure there has been a sharp drop in the cryptos price, and there is an indication the crypto will regain its high price.
Crypto is currently in a bear market. The next bull run is likely to commence following the Bitcoin halving in 2024. Therefore, buying the crypto dips or dollar-cost average into crypto today may provide a better average entry ahead of the next bull run.
However, it is important to be aware this carries risk, and there is always the possibility that prices could go lower or a new crypto bull market doesn't occur.
Despite ongoing market uncertaintt and a regulatory crackdown on crypto, many bullish events are happening in the background. For example, the world's largest asset manager, Blackrock, has recently filed to create a Bitcoin exchange-traded fund (ETF).
With this in mind, crypto will likely rise again. That said, investors must remain aware of all outcomes, only risking what they can afford to lose.
*Cryptocurrencies aren't regulated in the UK and there's no protection from the Financial Ombudsman or the Financial Services Compensation Scheme. Your capital is at risk. Capital gains tax on profits may apply.
Cryptocurrencies are speculative and investing in them involves significant risks - they're highly volatile, vulnerable to hacking and sensitive to secondary activity. The value of investments can fall as well as rise and you may get back less than you invested. Past performance is no guarantee of future results. This content shouldn't be interpreted as a recommendation to invest. Before you invest, you should get advice and decide whether the potential return outweighs the risks. Finder, or the author, may have holdings in the cryptocurrencies discussed.
Elliott Lee is a freelance writer specialising in cryptocurrency and fintech. He's been involved in the crypto industry since early 2020, and his work has been published on a range of sites. His particular interests are DeFi and exploring how cryptocurrency can solve real-world issues. Elliott also loves to travel and learn about different cultures and languages, and he's always trying new sports and activities.
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