Crypto Market Crash: Is It The Right Time To Buy The Dip?

The value of cryptocurrencies plummeted spectacularly in the final months of 2022 , and it seemed the bottom was lower than anyone expected. Last November, US-based crypto exchange Binance announced that it planned to buy rival exchange FTX trading—before pulling out 24 hours later—sending shockwaves through the investing world, with anxious investors pulling out their crypto funds and causing the company to collapse.

FTX filed for Chapter 11 bankruptcy in the US shortly after, while here in Australia, FTX’s local entities—FTX Express Pty Ltd and FTX Australia Pty Ltd—have also appointed insolvency and restructuring firm, KordaMentha to act as administrators. KordaMentha is in the process of checking the books of the Australian FTX entities in an attempt to salvage deposits for local crypto investors. Documents filed in the Supreme Court of Victoria reveal that almost 30,000 Australian investors have been left out of pocket by the collapse of FTX, some by as much as $US1 million.

As the incident unfolded, the once-admired billionaire founder of FTX, Sam Bankman-Fried (SBF), issued a series of mea culpas on Twitter before he fled to the Bahamas—where the company is based. SBF has since been arrested and extradited to the US, following the filing of a sealed indictment from US attorney Damian Willians of the Southern District of New York

Predictably, the movements caused chaos on the cryptocurrency markets. The price of Bitcoin fell by 23% in the space of seven days to $US15,978—it had been above $20,000 earlier that week. The other major cryptocurrency, Ethereum, was down 24% in seven days. In fact, the closer the coin’s connection to Bankman-Fried, the harder it fell, with Solana (SOL), a favourite of the billionaire, falling 60% in the space of a week, while FTX’s native coin, FTT, fell by more than 90%.

It wasn’t the first fall for Bitcoin in the past 18 months. Bitcoin once traded for almost $69,000 per coin in late 2021, but began its recent fall from grace back in May 2022 when it fell below the psychological floor of $US20,000 due to a broader crypto market crash. Last year, in one week alone in June Bitcoin dropped by 30%, and in late October, was still trading at around the $US20,000 mark.

However, 2023 has seen a powerful resurgence across the digital asset markets. In January, BTC rallied over 40% from a low of just over $US16,000 to a monthly high of almost $US24,000. Despite this surge, Bitcoin remains over 65% lower than its all-time high value, with many other cryptocurrencies even further off their peaks. 

When such large falls occur across the board for cryptocurrencies, many investors and enthusiasts begin pushing the old investment adage that it’s time to ‘buy the dip’–as many hope these lows mark a temporary downturn rather than a long-term bear market. But is this wise?

Related: Crypto News Australia: Australian Government Releases Token Mapping Paper