The Crypto Market Just Fell 15%. What Should You Do?
Put yourself in this scenario: It’s been a seemingly normal Friday. The evening has come and you're ready for the weekend. You’re tired from the long week. You’re so exhausted that watching Netflix, Hulu, or Amazon Prime (debating which of these three streaming services is best is an entire blog post in itself) doesn’t even sound relaxing. Reading a book is out of the question. So you lay in bed, scrolling on your phone—so tired that you dropped your phone on your face, twice—before falling asleep in less than two minutes. When you wake up it’s Saturday morning. You pick up your phone that never left the bed. You check the news. What do you see?
The crypto markets are down—a lot. News pundits are going crazy. Crypto Twitter is a nightmare. Bitcoin fell almost $10,000 in an hour, losing more than 15 percent in a 24-hour stretch.
You look at your crypto portfolio. It’s not just Bitcoin. Most everything is down. It looks awful.
What should you do?
First, slow down. Take a breath. We’re all in this together. Or at least those of us who didn’t sell their crypto.
Second, you should look at the data and understand the past. It’s not the first time, or last, the market has tanked. But how do you look at the past? What should you analyze? We’ve got you covered here at Makara. We’ve done the data analysis for you. Let’s take a look.
A Short History of Past Crypto Market Dips
Our team at Makara analyzed daily Bitcoin prices dating back to January 1, 2017* to identify days when the market fell by a substantial amount. By substantial, we looked for daily price decreases of 15 percent or greater.
Specifically, we compared the price of Bitcoin after large dips to the price 12 months later and to “current prices” meaning what Bitcoin is worth today (December 4, 2021 prices are used in our analysis). This gives us a comparison to see if “buying the dip” was historically a profitable move over the course of 12 months and beyond.
Here’s what we found:
There were four days when Bitcoin fell greater than 15%: December 3, 2021 dropped 20%; March 12, 2020 dropped 39%; February 5, 2018 dropped 15%; and September 14, 2017 dropped 16%. Three of those four days were more than 12 months ago (at the time of writing).
Buying the dip and holding for a subsequent 12 months was profitable in two of three cases:
- Buy on March 12, 2020, sell on March 11, 2021 = 1090% gain
- Buy on February 5, 2018, sell on February 4, 2019 = -50% loss
- Buy on September 14, 2017, sell on September 13, 2018 = 99% gain
Buying the dip and holding indefinitely (as of December 4, 2021) was profitable in all three cases:
- Buy on March 12, 2020, hold to December 4, 2021 = 914% gain
- Buy on February 5, 2018, hold to December 4, 2021 = 613% gain
- Buy on September 14, 2017, hold to December 4, 2021 = 1415% gain
What did we learn from our history lesson?
Armed with the knowledge of what happened after past market dips (if you had patience, you’d have made money) along with the belief that cryptocurrency is not going away, we think there are three strategies to choose from based on your personal investment appetite, two of which we recommend.
First, you could do nothing. You’ve already done the difficult work building your portfolio and creating a long-term strategy. Leave your portfolio alone. Do not touch it. Let the market play its course with the goal of a recovery. We can’t predict the future but history seems to have your back. Also, if you are using dollar cost averaging and making small deposits each month, continue to do so and you’ll lower your average cost.
Second, you could buy the dip. If you have disposable funds to invest, and most importantly in our minds, can invest them long-term, “buying the dip” is a sensible choice based on the data in our history lesson. But please, pair this with dollar cost averaging if you are not already for a well-rounded long-term strategy.
Third, you could sell your crypto. Unless you absolutely need the money and cannot afford additional potential losses, we don’t recommend this option. Like stock investing legends Warren Buffett and Jack Bogle, we advocate for buying and holding over longer periods of time. Selling after market declines guarantees a realized loss. Before you sell, ask yourself two questions: Am I selling based on fear of losing more money? And do I need the money now? A little self-reflection can be an investor’s best friend in making rational decisions.
One thing to keep in mind is that the historical analysis above is only based on Bitcoin. Many cryptocurrencies fall together albeit to varying degrees but some don’t follow suit. During the December 3, 2021 dip, there were multiple tokens that did not fall as dramatically as Bitcoin and in some cases, saw price increases post-dip.
This is another reason that we preach diversification at Makara and design crypto investment baskets to give you access to dozens of assets. Diversification can be your friend when the market goes haywire.
Our Takeaway: Be Prepared
Whatever you want to call it—a crash, a dip, a negative market event—be prepared for it to happen again. Know what you want to do: hold, buy, or sell if you have to. And the next time the market tanks, avoid watching too much punditry or getting lost in your Twitter feed. You’ll sleep better.
*Prices used in calculations were opening and closing daily prices from Coinbase Prime. Analysis begins at the start of 2017 as we view that year as the point where Bitcoin reached the global zeitgeist. Analysis with data prior to 1/1/17 is available upon request.
Makara Digital Corporation (“Makara”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration as an investment adviser does not imply a particular level of skill or training. Makara exclusively provides investment advisory services related to investing in cryptocurrencies and other digital assets.
Makara is not a broker-dealer, exchange, custodian, or wallet provider, and is not intended for frequent trading activity. Investing in digital assets is highly speculative and volatile and Makara is only suitable for investors who are willing to bear the risk of loss and experience sharp drawdowns.
Past performance is not a guarantee of future results. Makara charges annual management fees for investing on the platform which may impact performance.