Bitcoin has been dropping consistently for the past week and the crypto market has lost over $500 billion following this dip. Like with any crash, there have been the expected calls of ‘buy the dip’ from investors who believe that the dips are only temporary and that the digital asset will soon recover all of its lost value.
While this advice is sometimes sound, there is no doubt that there are some drawbacks with it, which could range from adding to a losing position that ends up losing more, to sinking more money in projects that may already be doomed to fail. Veteran trader Peter Brandt has addressed these calls of ‘buy the dip’, explaining why investors should not follow it.
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You Could Lose More Money
Famed trader Peter Brandt responded to a tweet from CEO of Vailshire Capital, Jeff Ross, saying that the price dips that are being experienced by bitcoin presented an opportunity for long-term traders to increase their holdings. Brandt’s tweet was vehemently against this school of thought, proposing instead “a sacred trading rule” for investors during times like these.
The veteran trader compared the current movement of bitcoin to the Silver $SI_F of 1980, which had grown to its $50 top after a massive run. It had subsequently sunk to $3.65, leading people to purchase it in the hopes of catching the dip, but the asset ended staying low for more than two decades.
I remember in 1980 people saying the same thing about Silver $SI_F after it topped at $50
It then sank to a low of $3.65 and did not start back up for 24 years
Not saying $BTC is the same, but a sacred trading rule I have used is never add to a losing trade
— Peter Brandt (@PeterLBrandt) January 7, 2022
Basically, the investor urged investors to not rush to purchase bitcoin because it is low and they think it will not go lower.
BTC continues downward trend | Source: BTCUSD on TradingView.com
Comparing Gold And Bitcoin
In a subsequent tweet, Brandt did a similar comparison to the price of bitcoin. This time around, he focused his attention on gold, calling out the fact that just like silver in the 1980s, gold experienced a similar trend.
He explained that gold had first hit its all-time high of $873 in 1980, followed by a drop in price to $255. The asset which had been the inflation hedge of choice for many decades had remained in this territory for almost three decades following this and would only beat this previous all-time high 27 years later.
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Brandt admonished the author of the previous tweet by asking, “Is this your definition of a ‘long-term’ investor?”
Naturally, Brandt’s comment regarding bitcoin had drawn the ire of bitcoin maximalists who flocked to explain to the older trader why the digital asset would not follow the footsteps of gold and silver.
One user tweeted that “Difference is btc is technology, not a rock”, while another pointed out that bitcoin had more utility, saying, “Gold has been a disastrous investment. Not much utility in it. Hard to carry your gold with you in the event of political system or economic collapse. Hence #Bitcoin.”
Featured image from Blogtienao, chart from TradingView.com