Bitcoin: Buy The Dip Or Never Catch A Falling Knife?

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There is a classic episode of The Simpsons which starts with Lisa staring out of the window as her father Homer sleeps in a hammock. She states: “Hmm, pressure dropping, humidity rising, increasing wind.”

The middle Simpson child then takes a book on weather phenomena and continues: “Here it is, chapter two, so your pressure is dropping…” she is surprised to see “hurricane”.

Using that analogy, you could say about the last few days in the crypto and stock market: overbought, warnings about bubbles, Tesla and Bitcoin and then continue with a healthy correction.

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World of pain

Now of course for all you newbies who have never experienced a crypto correction before and are only used to stock market falls of a few percentage points, I must admit: welcome to a world of pain.

What goes up, must come down at a certain point. The most important thing during this correction (which could turn out to become a crash, but it is too soon to decide) is not to get emotional.

$BTC

Idea.

We saw a ~28% drop in January in a matter of days. There was quite a bit of panic.

This move looks similar, and a ~28% drop would take us to $42K for a retest of that key level, the previous all time high.

JUST AN IDEA. pic.twitter.com/vcdRcfTXy2

— The Wolf Of All Streets (@scottmelker) February 23, 2021

Crypto has no so-called circuit breakers, which are automatic stops built into the world’s stock markets that make sure that the market is halted after a 10% drop, so that everyone can take a breather.

Crypto corrections mean you need to ride out the storm. If you believe the only way is up, you are confusing crypto trading with a song from the 1990s by Yazz.

Institutional investors

Given that institutional money is now in play since a few months (as soon as Square invested $50 million in Bitcoin in November last year), you should expect the price of Bitcoin to be directly influenced by any commentary from US monetary authorities.

Square announced yesterday that they bought the dip and added another $170 million of Bitcoin to their treasury. Making their total BTC holding 8,027 BTC which is 0.02527% of the total circulating Bitcoin.

The US is still the world’s largest economy with the biggest investor population. For that matter, any threat of regulatory overhaul of the crypto market are to be taken seriously and you should expect the crypto market to react.

Just as European stock markets reacted to the words of Mario Draghi when he was president of the ECB during the Euro crisis of 2013-2014 (Greek debt), this time round it is US Treasury Secretary Janet Yellen who’s quite influential. As seen on Monday, harsh words from her will have institutional investors react.

Those big pages convincing others to “hold forever” are 100% going to dump their bags when their targets are hit.

Few understand this.

— CryptoWhale (@CryptoWhale) February 22, 2021

The only question that thus remains at this point is: do you buy the dip or go with the old adage to never catch a falling knife?

In terms of Bitcoin influencers and technical analysts at this point, that means, do you follow Scott Melker or CryptoWhale?

The following days will tell.

mmaxer / Depositphotos.com