Crypto Market Correction: Is It the Right Time to Buy?

TL;DR

• It isn’t necessarily a bad thing when crypto markets are in the red. In fact, it could be the right time to buy the dip and leverage the market correction.
• The recent downtrend can be chalked down to a number of reasons, like the Terra Luna crash, apart from macroeconomic factors like the Russia-Ukraine tension, interest rate hikes, threat of recession, etc.
• Low periods are part of the market cycle and raise the question of buying the dip. But rather than timing the market, it’s important to invest for the long term.
• A useful investment strategy during market corrections is dollar-cost averaging. It helps you benefit from market fluctuations while averaging the cost of acquiring the assets in the long run.
• And with crypto, the potential for a market reversal is always high. So gauge your risk appetite and do your own research before diving in.

Introduction

If red is your favorite color, you should surely look at the crypto market now. It is crashing for the second time this year. If not, you should take a look anyway! It is a well-known proverb that one man’s garbage can be the treasure of another. That is exactly what the current market correction of crypto reflects. This is not investment advice for you to enter the crypto arena, but to ponder about, is it the right time to buy the dip and leverage the crypto market correction! 

Why Did Crypto Market Turn Red Recently?

It is certainly not the first crypto market correction. Bitcoin was the OG cryptocurrency that emerged in the aftermath of the 2008 global financial crisis, yet it had a humble opening. However, within ten years, its prices soared and reached an enormous level of near $20,000–an all-time high for that period. The twist came when it lost its 75% value in the following year. Investors were left wondering, and critics stomped their chests. 

However, it turned out to be nothing but a market cycle. Bitcoin emerged back stronger than ever. In any financial market, there is hardly a linear trajectory. Several other cryptocurrencies emerged during the following years and performed extraordinarily well, with Bitcoin leading the pack. It reached a new all-time high in November 2021, only to fall to the 2017 level. Bitcoin reached USD 68,000 in November 2021. This year it got a major setback as it slumped below USD 18,000. It wasn’t limited to Bitcoin because major cryptos lost more than 70% of their value this year.  

However, the reasons for this fall or correction are different this time. In May, considered in the top ten cryptos in the world, Terra Luna collapsed to literally its ashes and lost 99% of its market value. Last year, it held the value of $120, and with the crash, it reached almost to dust, and its $40 billion market cap vanished into thin air.

This was enough to make investors lose their exuberance and for crypto exchanges to pause withdrawals and transfers and provide air to the fire.

In addition to this, the global market condition, too, is currently passing through a rough patch. Many macroeconomic factors are already weighing in. These include the:

• Russia v/s Ukraine tension
• Higher inflation and a potential recession awaiting
• A rise in the Fed rate and,
• A curb in expenses leading investors to read between the lines. 

Also, recently the regulatory uncertainties in geographies like China, Russia, and India have infused Fear, Uncertainty, and Doubt (FUD) in the market.

All these reasons combined led to a heavy market correction this year, with the overall crypto market valuation falling below the $1 trillion mark since January last year.  

Is It the Right Time to Enter the Market?

There is a popular quote by Ken Fisher, “Time in the market beats timing the market”. This essentially means that the time you stay invested is more important than the time you enter the market. Any asset invested for a long time can yield on-par returns. However, not without its risks and limitations. 

Currently, the crypto market is running low, and that poses the question of whether you should buy the dip. The answer is yes and no, or more, depending on your preferences. If you had invested in the crypto market correction in 2018, without a doubt, your investments would have tripled last year but only to return to the level of 2017 in a few months. 

Buying the dip is a concept associated with dollar-cost averaging. It implies that you buy a particular asset at regular intervals to benefit from the market fluctuations and reduce the overall cost of acquiring by averaging it. This works well in the equity market, but cryptos are more volatile than equity. The reasons are that the crypto market is open 24 hours. 

Thus, while the dip can be a good time to invest and leverage the low prices, the actual right time to enter the crypto world is when you are actually ready to invest and accept the upside potential with the hanging drawbacks. Download Mudrex if you think you are!

Will the Crypto Rise Again?

The crypto market downturn can be described in two ways. Either we can call it a crash, or we can call it a correction. The meaning stays the same, but the intention changes. The first pauses as fear and the latter as an opportunity. 

As the table indicates, crypto has its own share of ups and downs but definitely requires due diligence before investing. Currently, the Crypto Fear & Greed Index is at a 9/100 level, which suggests that investors are in extreme fear. It was 75/100 when the crypto reached its all-time high in November last year. 

As its history suggests, the potential for rising is there, but that is likely to take its own sweet time given the current crypto market condition and macroeconomics. The best is to gauge your risk appetite and do thorough research before jumping into the market at any time. 

Conclusion: What’s in It for You?

As an investor, you can gain from investing in crypto during this correction, but it can be a little risky. If you have the required risk appetite, this dip serves as a good opportunity but with its own pros and cons. Moreover, investing in individual cryptos can be tricky.

For example, if you had invested in PancakeSwap (CAKE) a few months back, your capital could be more than 50% down. However, if you had invested the same amount across the decentralized exchanges sector as a whole, you would be in net profit. Investing in sectors is a prudent form of investing during bear markets. Mudrex Coin Sets allows you to invest across different sectors in just 2 clicks, and there are no fees involved.

FAQs

1. What does crypto market correction mean?

Market correction refers to a short-term dip in the market that is less severe than a crash. This dip could be about 10-20% and last up to a few weeks or months. They are necessary to ensure the proper growth of the assets. 

2. What happens after a market correction?

Soon after the correction, the dip recovers as the graph moves upwards. In 2021 alone, there were four crypto market corrections that lasted for a few weeks and recovered shortly. During these corrections, there is often fear in the market.

3. How much is a correction in crypto?

A short-term dip of 10%-20% is considered a market correction. These declines last only for a few weeks and can’t be predicted beforehand. The best way to deal with these corrections is to not sell your holdings out of fear and keep calm.

4. What is a 20% correction called?

A 20% correction is called Technical Correction. It refers to a decrease in the market price of a cryptocurrency that is greater than 10% but lower than 20% from the recent highs. The prices increase post-correction.