Technology

Is it time to buy the fall?

In the world of finance, there are phrases that are repeated insatiably. In fact, they are repeated so much that over time they become dogmas of faith. Its validity is assumed to be self-evident. In other words, acceptance is automatic and without question. “Buy the dip” (or “buy the fall” in Spanish) is one of these phrases. The price goes down. Which, basically, is bad news. But it can also be a buying opportunity. It is undoubtedly an optimistic phrase that seeks to take advantage of adversity. True, during a bull cycle, corrections tend to be a great buying opportunity. After all, you are buying at a discount. However, it is not always a good idea to buy the dip. When is it not a good idea to buy the dip? At the end of a bull cycle.

Let us analyze for a moment the case of El Salvador. El Salvador arrived relatively late in the bull cycle. In other words, Bukele bought expensive at first. Because he bought in full euphoria. We must remember that he bought with public funds. And he issued debt tied to those purchases. Now, in each important fall, Bukele announces new purchases through his Twitter account. Bitcoin continues to break supports. Right now, The support of $20K supports us. We must remember that this is our old historical maximum that was our resistance for several years.

Now, the investor must know that the markets fluctuate. Prices rise. But the prices also go down. In the case of an asset as volatile as Bitcoin, the risk is high. The word “risk” is always controversial, because nobody likes their favorite asset to be labeled “risky”. However, we cannot cover the sun like a finger. The pun works up to a point. Bitcoin is volatile. Spot. If Bitcoin continues to fall, all the credits associated with its price are in danger. As simple as that.

Raising the possibility of a bearish scenario is not necessarily spreading FUD. It would be very naive of me to invest only counting on a bullish scenario. It would be living in a fantasy. Can your portfolio tolerate more falls? If the answer is negative, we have a problem. Can Microstrategy, for example, afford a $15K Bitcoin? Can the investor who invests in Salvadoran bonds sleep peacefully with a Bitcoin at 15K$?

Buying a dip during an uptrend is a very good idea. Buying the dip at the end of an uptrend is not. It is very smart to buy low near the bottom during a bearish cycle in anticipation of the next bullish cycle.. But that usually happens well into the down cycle. It is very rare to find a bottom right at the end of a bull cycle. Usually the pain lasts for a while. The market has to suffer quite a bit before going back up.

doDo you have your house in order? What is your income? What are your expenses? What is your current lifestyle budget? How’s your emergency fund? How stable is your portfolio? What would happen to your portfolio if the $20K support breaks? How much debt are you?

What do we need to buy the fall? First of all, we need cash. That implies that we cannot buy all dips. Because we are in danger of running out of cash at the time of the big opportunity. Highly leveraged people lose that ability, because collateral drops with every drop. In conclusion, dips should be bought strategically. It’s not about buying crazy. It is not about trusting at all costs with delusional optimism.

During the last decade (2009-2021), liquidity was abundant due to the loose monetary policies of the time. Optimism was sky high, because the future promised much prosperity. Investors developed a high tolerance for risk because the conditions were right. Some years were better than others. However, it could be said that It was a fairly prosperous and stable decade. Bitcoin was one of the darlings of that time.

Investors invest with an expectation. The idea is to buy low and sell high. Which implies that it is advisable to buy in oversold periods and sell in overbought periods. All this sounds very nice. And, in most cases, it works perfectly. Things get complicated during a trend reversal. In effect, it is possible for the price to rise to reach a top and then fall. During a bull cycle, that drop is usually temporary. But, at the end of a good bull run, that first dip is the first of many dips to come. It is not convenient to buy it. Lor it is better to keep waiting for a better moment.

Have we reached the bottom? It’s so hard to tell. We are at the beginning of a paradigm shift at the macroeconomic level. And many analysts expect a global economic recession that could last for several years. The markets, due to lack of clarity, have become quite conservative and are desperately seeking the protection of more stable financial instruments.. We have many failures in the production and distribution chains. A war in Europe. Inflation. Geopolitical tensions everywhere. And a rather worrying indebtedness. It is very difficult to declare a minimum now with such an uncertain future ahead. I believe that at this time it is very premature to declare a possible fund.

Now, it is always wise to invest wisely. Let’s hope for the best, but prepare for the worst. That, in many cases, means that we must reorganize our portfolio to give it more stability. It doesn’t matter if we have to sacrifice growth for security for a while. You don’t always have to get into the fight. Sometimes it’s better to retreat for a while and wait for the dust to settle.

Many are here (in the crypto space) for ideological reasons. To an idealist, his ideal is often more important than money. Indeed, he never leaves the ship and recites his creed to the end. Because the idealist is always on the campaign trail. Of course, not all of us are idealists. Many of us do care about money. And the priority is to bring bread to the table. In short, sometimes buying is not the best thing. In some cases, it is best to avoid the risks. Get organized. Expect.

Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.

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