“Buy the Dip” Calls Decline, Signaling Investors’ Capitulation ⋆ ZyCrypto

One of the most popular investment schemes by strategic Bitcoin, Ethereum, Cardano, Solana investors is “buy the dip”. It implies purchasing strategically profitable assets during their local corrections.

The underlying logic of such conduct is the desire to maximize long-term returns. Even small corrections of 5%-10% can generate considerable additional benefits for traders, while large corrections of 30% and more can drastically improve one’s positions as long as the major assumption of the asset’s long-term appreciation is correct.

Previous instances of Bitcoin, Ethereum, Cardano, Solana price declines have always been followed by considerable increases in the volumes of purchases as many proponents utilized these moments for expanding their crypto holdings.

However, according to data provided by the behavior analytical company Santiment, the number of such purchases has declined dramatically during the last crypto depreciation. The most probable explanation is that many investors currently perceive such a situation not as a correction of the higher-level bullish cycle but rather as the formation of a new bearish trend.

As they expect a further and potentially even more massive price decline, they abstain from opening long positions and increasing their BTC holdings. Such behavior confirms that bearish expectations currently dominate the crypto industry.

Another plausible explanation is that many minor investors lack sufficient funds to maintain their positions. In fact, they tended to keep their long positions but the number of funds proved to be insufficient for maintaining such a strategy, resulting in margin calls.

In this case, their positions are forcibly liquidated. Many other investors who are more risk-sensitive may also prefer to abstain from entering the market as long as the BTC price continues to decline at such high rates.

From a historical perspective, high rates of depreciation may imply that the bearish cycle may persist for many more months. Under such conditions, many investors may prefer increasing their holdings in stablecoins or gold. While the currently observed capitulation may lead to the higher rates of BTC price decline in the short run, it will also facilitate the time needed to reach the local bottom.

Moreover, the market panic may lead to the situation, when the market price falls much below the fair (economically justified) price. In this situation, those investors who continue pursuing their independent strategy instead of following the general line can effectively maximize their returns and receive additional crypto diversification benefits. Therefore, close monitoring of technical signals may be needed to determine the optimal moment for applying the “buy the dip” strategy.