Buy The Dip? Making Sense Of The Current 2022 Crypto Drop

Crypto is having a bad time lately, as we’ve been seeing a sharp plunge in value for Bitcoin as well as many other popular digital currencies. As of writing Bitcoin is holding around $26,816, or roughly Php 1.4 million – a far cry from its record high of $68,000, or around Php 3.5 million just a few months ago in November of last year. That has many people asking themselves if they should buy crypto during the dip or just drop their positions entirely while there are still positions to drop.

Before we talk about what you can do during these trying times, let’s take a look at what’s happening that’s causing the price of Bitcoin, and really most cryptocurrencies, to drop:

The explosion of the price of Bitcoin in the past few years has been both a blessing and a curse, as a lot more traditional investors have diversified into it. While that has largely driven the value of Bitcoin to insane highs, it also means that it’s now more susceptible to external factors like higher interest rates and political instability. Add in the looming threat of proposed crypto-specific regulations, as well as good ol’ investor uncertainty when it comes to trading very volatile assets like crypto, and you get a lot of people getting rid of their crypto assets, trying to eke out a solid return before the inevitable crash.

Then there’s the Stablecoin issue, chief of which is Terra UST and its sister token, Luna. Stablecoins in a nutshell are a type of digital currency that ties its value to legal tender like the U.S. Dollar. Unfortunately, Terra UST (which is supposedly tied into the value of the dollar) dropped to just 60 cents on Monday and 26 cents today.

Coindesk says that Anchor, the main trading platform for these currencies, was the major reason for the drop. Thanks to the platform’s high incentives (with market-leading yields of up to 20%), a very large chunk of UST (around 75% of the entire circulating supply) was located in Anchor. You can probably see where this is going. Many critics pointed out that Anchor’s insane yields were unsustainable, and when traders started withdrawing currencies to cover for the market’s growing instability, billions of dollars fled Anchor at once. The ensuing chaos dropped the value of both UST and Luna, which forced other traders to withdraw their positions in UST and Luna, and, which then caused the price to drop even further, which then caused other traders to withdraw…you get the picture.

Long story short, crypto is hurting right now, but to be fair even traditional stocks are seeing red. For many veteran crypto traders, the current drop in crypto price is part of life when you deal with such a volatile investment.

Should you buy the crypto dip?

Ultimately, most investors will tell you the same thing today as they did when crypto hit record highs: only invest what you’re willing to lose. Crypto markets are incredibly volatile, especially now with all the instability in the world markets. “Don’t catch a falling knife” is a term that traders use that definitely applies now – the most sensible thing to do is wait until crypto prices stabilize before investing.

If you’re hell-bent on buying even with everything going on, then one popular suggestion is to set a maximum budget of what you’re willing to lose, make your investment, and forget about it for a while.

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