What to do in a dip. Hodl or sell
Meet Samuel, an accountant who has been monitoring the crypto market for months and is excited about the rapid rise of cryptocurrencies.
After extensive research, Samuel believes that this is the right time to get into crypto and decides to invest $1000 in three coins — X,Y,Z. His investments appear to be going well, and after a week, the value of his assets increases to $2000.
The increase in value encourages Samuel to buy more, and he invests an additional $2000, making his total capital $3,000. However, the honeymoon period does not last long, and the crypto market suffers a major crash.
Samuel wakes up on a heart-breaking Monday morning, opens his Binance app and every graph is red. His investment has lost 70% of its value overnight. He’s now left with $700 from his initial capital and faces the dilemma of whether to sell or hodl — ‘’hold on for dear life’’.
Samuel is not alone as many crypto investors face this dilemma every day.
Are you contemplating whether to sell your crypto asset or hodl after a significant price drop? Then today’s newsletter is for you. Read along!
First, some context
As you probably know, most cryptocurrencies are decentralized — this means that they’re not under the control of any government, unlike fiat (Dollar, Pound, Naira). This unique feature is why they are largely unstable and fluctuate in price.
Once you understand this basic knowledge, we can move to the next phase.
What causes a dip?
Crypto market dips are usually caused by a few factors.
The first is speculation. This is when people bet on whether the price of an asset will increase or decrease over time. Since many popular cryptocurrencies like Bitcoin are volatile, they attract speculators (traders and investors) looking to turn a profit.
However, when a particular coin has a negative spotlight for an extended period, speculators often avoid them, bringing down its market value.
A good example is Ripple which suffered a price dip in 2021. Ripple was the third-largest cryptocurrency for three years until news broke that the brains behind the project were under investigation from U.S. authorities.
The news led to a phenomenon called “FUD” — fear, uncertainty and doubt. Within a week, investors started selling their assets, resulting in a 50% market dip for the coin.
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The good old law of demand and supply is another factor that causes crypto markets to dip. High demand for an asset causes scarcity and a price increase while low demand causes a decrease in value resulting in a “dip”.
Furthermore, National policies against cryptocurrencies may affect the market leading to a dip. For example, in June 2021, the Chinese government banned bitcoin mining citing environmental concerns. This policy caused the price of Bitcoin to dip by 10% overnight — at the time, more than 60% of bitcoin miners were from China.
Other factors that may lead to dips include wars, political instability, and fear.
Are you a trader or a hodler?
Every crypto investor falls into the category of a trader or a hodler. If you love the daily thrills of buying and selling cryptocurrency, regardless of the market situation, you belong to the trader category. While if you believe in keeping a particular cryptocurrency long term, you’re a hodler.
Whichever the case may be, you need to understand how the market works before making vital decisions. You also need to be emotionally intelligent to avoid making sentimental choices that could make you lose money.
Let’s explore when to sell your coins during a dip
Remember that this is not financial advice.
When to sell:
- The crypto market is still young, and the truth is that most coins depend on the hype generated from upcoming developments. If you notice that there’s no progress regarding long-term development for the token you hodl, it is advisable to sell and drop the coin from your portfolio.
- Another indicator to sell is when there’s no structured community support for the cryptocurrency. Most tokens have a system where community members contribute in different ways to ensure their success. You should always check for the community on popular social networks like Discord, Twitter, Reddit and Facebook.
- Additionally, it’s best to sell when your coin stops appearing on popular exchanges like Binance, Coinbase, FTX and Kucoin. This is because the coin has most likely lost value and there’s a high potential for a dip.
- You should also consider selling your asset when a government creates policies against the cryptocurrency in your region. While there is widespread global adoption of crypto, some countries are keen to regulate transactions regardless of the type of assets. So what happens when your government bans cryptocurrency? You may have to sell it.
When to hodl:
- The best time to hodl is when the coin has a history of rebounding from dips. Bitcoin, for example, is known for going on wild dips and recovering to hit new heights. It is therefore not surprising that many bitcoin investors prefer to hodl rather than sell during a significant dip.
- You can also hodl an asset that has the backing of the community and continues to develop new products. This could indicate that the project has the potential to rise in value in the future. Solana is a great example of an asset that was undervalued for the longest time before finally making huge gains in 2021.
- Hodling can be beneficial when the token is adopted by institutions and companies globally. Ethereum is a token that has continued to attract global attention. Therefore it is not surprising that it usually recovers after a major dip.
Benefits of selling during a dip
- Selling your crypto assets during a massive dip saves you from significant losses. It is usually best to sell when the coins are quickly dropping in value so you do not lose all your assets at once.
- Also, selling during a dip allows you to redistribute capital into buying other coins at extremely low prices. This can be a great bargain and provide huge profits when the market rebounds.
Benefits of hodling during a dip
- The hodling strategy helps you avoid panic selling and losses from short-term market volatility. In some cases, the price of an asset dips for a short period before embarking on a massive spike in value. Hodling helps you take advantage of such scenarios.
With that being said the decision to sell and hold depends on your conviction about how the asset is performing. Always remember to tailor advice to your specific situation and use it as a guide for your crypto journey.
If you enjoyed today’s episode, reply to this email and let us know what category you belong to, trader or holder. Also, don’t forget to show off the knowledge you learned today by sharing this newsletter with two or more people.
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