Anyone who has spent some time perusing various online crypto communities has likely heard the catchphrase, “buy the dip”, or it’s more explicit cousin, “buy the f***ing dip”, often abbreviated to BTFD. In the most general sense, this sums up much of what can be described as a “trading strategy” for any market – of course you want to buy low and sell high. When it comes to cryptocurrencies, which are notoriously volatile, buying the dip can yield significant profits assuming the market does, in fact, recover. Hence the enthusiasm with which many adherents profess in all caps, “BUY THE DIP!” whenever Bitcoin crashes.
In relation to where Bitcoin was valued at the beginning of the 2018, there is certainly a valid case for the market to be in a “dip” right now. Has it bottomed? Who knows. The short term market movement of Bitcoin can paint a confusing picture, but there are some troubling signs emerging around longer term global economic trends that may provide some valuable insight surrounding the value of Bitcoin, and what might end up being the real reason to buy the dip.
Financial Crisis Part II? What the Experts Are Saying
Meet Sheila Bair. She was the head of the FDIC during the 2008 Global Financial Crisis, and is best known for being one of the only voices to raise concerns about the dangerous state of the US subprime mortgage bubble that ultimately resulted in said crisis. In a March 2018 interview with Barron’s, Bair expressed concerns about the current state of affairs, particularly in relation to deregulating US banks, leading to another major meltdown. Bair explained, “when banks have been profitable for many years and they just got a big tax cut, you want banks to keep building buffers… To loosen capital now is just crazy. When we get to a downturn, banks won’t have the cushion to absorb the losses. Without a cushion, we will have 2008 and 2009 again.”
Bair is not alone. The IMF has also expressed serious concerns. According to The Guardian, “The global economy is more deeply indebted than before the financial crisis and countries need to take immediate action to improve their finances before the next downturn, the International Monetary Fund has said.” The Office of Financial Research (OFR), an independent arm of the US Treasury Department, has also raised the alarm. “A lingering concern for the OFR is the danger posed by the big banks’ portfolios of derivatives, which are valued in the trillions of dollars, and which were a major factor in the escalation of the 2008 crisis,” said Investopedia, also citing a lack of capital buffers among a number of global systemically important banks (G-SIBs) as a troubling sign, echoing Bair’s remarks. For those drawn to Bitcoin for its original vision, these words of warning from financial experts may serve as a reminder that the real value of Bitcoin isn’t necessarily what it’s worth in dollars on any given day, and why you might want to buy the dip!
What Does This Mean For Bitcoin?
Although not everyone thinks we’re heading for another global financial crisis, there are quite a few factors that seem to indicate the seas ahead may not be smooth sailing. Potential instability in the traditional financial system is one often overlooked reason for Bitcoin believers to buy the dip. As one Seeking Alpha writer put it, “Whether it’s a dollar crisis due to blowout U.S. deficits, and a continuously swelling national debt, a sovereign debt crisis due to a collapse of the Eurozone, a credit crisis due to record levels of debt all around the world, a financial debacle in China, or some other financial disaster, the traditional financial system will experience an enormous shock once again… So, what is the alternative, how do we get off this train seemingly headed towards the edge of a cliff? Of course, the solution is Bitcoin.”
Not only can Bitcoin, and cryptocurrencies more generally, serve as a financial instrument for exchange and a store of value, but they can often perform these functions more efficiently, securely, and inexpensively than the current system. Furthermore, cryptocurrencies like Bitcoin are not susceptible to control, manipulation, inflation, or confiscation from corrupt governments or central banks. Despite its volatility and ongoing questions surrounding regulation, Bitcoin continues to grow in popularity and gain mainstream recognition. While it is true that Bitcoin’s value has dropped significantly from its all time high a few months ago, a look at the broader economic trends seems to suggest that one would be wise to buy the dip. It is almost as if an asteroid shaped like Satoshi Nakamoto’s face is hurtling towards Earth shouting, “BTFD!”
Perhaps that’s a bit hyperbolic, but with increasing instability throughout several geopolitical regions and a push towards further financial deregulation in the US, it is certainly worth exploring the possibility of an economic downturn. In that context, there is a strong case to be made for Bitcoin as an alternative to national fiat currencies in terms of how to store wealth during a potential recession or period of instability. To store wealth, of course, one must first accumulate it. Hence, buy the dip.