Crypto Market Dips Explained
The market could be seen as an ecosystem organized by an invisible hand. Each market participant acts and plays freely based on their individual ideas and following their own personal interests. "The market" is shorthand for the collective values of individual investors and companies.
However, there are recurring factors that can affect the up and down market movements.
The Law of Demand and Supply
In a market economy, any price movement can be explained by a temporary difference between what providers are supplying and what consumers are demanding at a given time.
“The law of supply and demand is a theory that explains the interaction between the sellers of a resource and the buyers for that resource. The theory defines the relationship between the price of a given good or product and the willingness of people to either buy or sell it. Generally, as price increases, people are willing to supply more and demand less and vice versa when the price falls”. ~ Investopedia
A greater number of buyers than sellers (more demand) breeds scarcity, which causes sellers to bid up the prices of the stocks and where there exists more sellers than buyers, prices go down, as value drops.
Confidence in the stability of future investments plays a significant role in whether markets go up or down. Investors are more likely to purchase stocks if they are convinced their shares will increase in value in the future. If, however, there is a reason to believe that shares will perform poorly, there will be more investors looking to sell than to buy, and in recent times, there has been a lot of panic selling happening and some profit-booking also taking place, because even with the dip, those who for instance purchased Bitcoin in 2020, are technically still seeing a profit, at least three to four times higher than their buying price. So the market crash can be said to be a combination of pressure arising from both profit-booking and panic selling.
The question on everyone's lip is “will the market ever recover”?
If history is anything to go by, then yes, it will. One cannot say they’re truly involved in cryptocurrencies without surviving a few strong market dips. They are a part of the economic cycle and should not be feared. While digital currencies are considered "risky assets", it is important to remember that market dips are just as prevalent in the stock markets.
The crypto market dip only further reinstates the stance that crypto trading is a long-term financial investment and not a “get rich, quick” scheme.
So, fight through the temptation to panic sell, as when the market recovers, so does your investment portfolio.