Bitcoin (BTC +2.82%) and XRP (XRP +2.76%) are both getting hit hard right now, and the mood among crypto investors is the ugliest it's been in years. Now, Bitcoin is down 22% over the last 30 days, and XRP is down 32% over the same period.
If you have a long-term investing horizon, not to mention plenty of guts, this kind of sharp drawdown can be a gift. Of course, it's also quite possible that investing in these coins right now will extract a hefty and painful tuition for a lesson about the dangers of catching a falling knife. So, should you buy the dip with these coins?
Image source: Getty Images.
First, plan to survive
Bitcoin has one big structural advantage: it doesn't need to add many new features over time to sustain an ongoing level of demand.
What it needs is continued belief among at least some investors that a scarce, bearer-style asset serves as a hedge against government policy mistakes that might debase fiat currencies. That thesis can be put under intense question, including right now, but it doesn't become invalid just because sentiment about the asset is poor. Put differently, Bitcoin is still an independent asset that no government can print more of, even if its price is significantly down compared to its prior highs.
CRYPTO: BTC
Key Data Points
Still, the near-term risks are real. This sell-off is linked to weaker risk appetite, tech stock weakness, and Bitcoin ETF outflows -- including $620 million in outflows on Feb. 4 alone. Buying the dip is thus quite hazardous.
Therefore, if you buy it, buy as if you might be wrong for a year. That means making small, scheduled buys, if you choose to nibble at all. For the record, that's my plan.
XRP is a riskier bet
To flourish, XRP needs to be adopted by financial institutions.
Specifically, it needs a network effect to form around its use cases in international money transfers and tokenized asset management such that its financial ecosystem becomes self-sustaining, and a place where banks and currency exchange houses will want to do business. This plan can work, but it can also stall for reasons that have nothing to do with the coin itself, like banks feeling like it isn't the right time to invest in new technologies.
CRYPTO: XRP
Key Data Points
Ripple, the company that issues XRP, isn't going to stop working on the XRP Ledger (XRPL) just because the market crashed. So in the medium term, the coin will continue getting more features, which will likely attract more users and thus increase XRP's value. But the short term looks a bit bearish no matter how you slice it, and XRP could still lose a lot of value between now and when the market starts to recover.
So you should probably only buy XRP right now if your risk tolerance is on the higher side, or if you're fine with holding your coins at a loss for a while. Once the market settles a bit, perhaps within a couple of weeks from now, it'll be a better time to buy the dip.
