Is now a good time to buy crypto?
The crypto market has crashed, but does that mean now is a good buying opportunity?
Last week was one of the most dramatic weeks in the history of cryptocurrency. More than $1 trillion was wiped off the market thanks to the collapse of the TerraUSD (UST) stablecoin and the Terra ecosystem.
But while many investors are understandably nervous, for others this may be considered a chance to "buy the dip" and pounce while prices are low.
Why would I buy now?
Historically speaking, "black swan" events like the COVID crash in March 2020 have turned out to be great buying opportunities. During times of uncertainty, investors (and therefore markets) behave irrationally. This can lead to dramatic sell-offs as investors panic in anticipation of things getting worse.
The collapse of UST and Luna could be considered another black swan event, and if prices recover, may in retrospect have also turned out to be a good time to buy.
As Warren Buffett famously said, investors should be "fearful when others are greedy, and greedy when others are fearful". Of course, there's no guarantee that cryptocurrencies will necessarily bounce back in the short or long term, and it's likely that the market will remain volatile for some time to come.
But if you're thinking of "buying the dip", it's extremely important to keep a couple of things in mind:
What to keep in mind before investing
- Only invest what you can afford to lose. This is the golden rule of investing. Never use money that you will miss.
- Make sure you have a clear strategy for how and when you plan on selling. Just like it can be difficult to fight the urge to sell when prices crash, it can be equally difficult to force yourself to sell when prices are high. Setting clear goals can help you make sure you take advantage when your investments are profitable, and avoid panic selling when they're not.
- Do your research. As the collapse of UST and Luna has shown, even the most popular projects can have fatal flaws that may not be immediately obvious to average investors. You should never invest in something that you don't fully understand.
If in doubt, DCA
Regardless of what you think will happen to crypto prices next, the simplest way to continue investing is to use a strategy known as dollar cost averaging (DCA). With dollar cost averaging, you regularly invest a fixed amount, for example $50 per week, regardless of the price. Not only does this take some of the stress out of investing, it means you may be better protected against crypto's volatility and price swings.
Take advantage of dollar cost averaging by setting up fee-free recurring trades in your Finder app. Just go to your Crypto tab, scroll down to the "Set up a recurring trade" section and click "Get started".
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