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Buying the Dip: A Data-Driven Analysis of SOL Post-Liquidation Investment Returns

April 9, 2025trading

In the volatile world of cryptocurrency trading, one strategy has become almost legendary among traders: "buying the dip." But does this strategy actually work? And more specifically, does it work for Solana (SOL), a cryptocurrency known for its exceptional volatility? This analysis dives deep into the data to determine whether buying after significant price drops—particularly liquidation cascades—actually provides superior returns.

You can buy dips on Major exchanges like MEXC, Bybit, and Binance.

The Hypothesis

The common wisdom suggests that buying after a significant price drop can lead to outsized returns. We set out to test this hypothesis with real data, analyzing different drop magnitudes and holding periods to determine:

  1. Which drop severity provides the best returns?
  2. What holding period maximizes profit potential?
  3. How does SOL compare to other major cryptocurrencies when applying this strategy?
  4. Are "liquidation cascades" (multi-day severe drops) particularly advantageous buying opportunities?

Average Returns by Drop Severity and Holding Period

Our first analysis examined the average percentage returns when buying after different drop magnitudes (5%+, 10%+, 15%+, and liquidation cascades) and holding for various periods (7, 30, and 90 days). We also included a control group of random days for comparison.

The results are striking:

  • Short-term results (7 days): Modest returns across all strategies, with cascade events providing the best 7-day return at 14.20%
  • Medium-term results (30 days): Random day buying surprisingly outperformed most drop strategies at 34.84%, though cascade buying still showed strong performance at 27.41%
  • Long-term results (90 days): Severe drops (15%+) showed the highest returns at 201.49%, significantly outperforming both random day buying (228.24%) and moderate drops

The most surprising finding here is how well random day buying performed, especially in the 30-day and 90-day timeframes, sometimes outperforming strategic drop-based buying. This challenges the conventional wisdom of "buying the dip" for SOL specifically.

Profitability Analysis

Beyond average returns, we analyzed the percentage of trades that were profitable for each strategy. This gives us insights into consistency rather than just maximum potential.

Key insights:

  • Short-term (7 days): Cascade events had the highest profitability at 83.33%, meaning more than 4 out of 5 trades were profitable
  • Medium-term (30 days): Cascade events remained the most reliable at 60% profitability, while 15%+ drops were the least reliable at only 36.84% profitability
  • Long-term (90 days): All strategies converged to roughly 50-60% profitability, with cascade events still leading at 63.33%

This data suggests that while the magnitude of returns may vary, cascade events consistently provide the most reliable entry points across all timeframes.

Returns After Major Liquidation Events

We isolated the five most severe liquidation cascades in SOL's history to analyze their specific return patterns:

  • 2022-11-09 (-42.25%): Modest 7-day and 30-day returns, but strong 90-day recovery at 69.18%
  • 2021-05-19 (-37.49%): Similar pattern with excellent 90-day returns of 83.27%
  • 2020-09-05 (-26.20%): Strong immediate 7-day bounce of 27.88%, but negative 90-day returns
  • 2021-06-21 (-24.56%): Outstanding recovery with a 474.50% return after 90 days
  • 2022-05-11 (-23.92%): Negative returns across all timeframes, showing that not all drops lead to recoveries

This data reveals that while major drops often present excellent buying opportunities, there's significant variation in outcomes. The timing of these drops within broader market cycles appears to be critical.

Comparison with Other Cryptocurrencies

When comparing SOL's post-drop performance to Ethereum (ETH), Binance Coin (BNB), and Fantom (FTM), we uncovered some fascinating patterns:

  • Average returns: SOL consistently showed higher average returns after drops across all timeframes compared to ETH and FTM, with only BNB competing in some metrics
  • Profitability: ETH and BNB demonstrated perfect 100% profitability for 90-day holds after 15%+ drops, while SOL lagged at 57.89%
  • Maximum upside: SOL's best 90-day return after a drop was an astonishing 1081.57%, far exceeding ETH (129.81%), BNB (88.04%), and even FTM (232.60%)

This comparison highlights SOL's unique risk-reward profile: lower consistency but far higher maximum upside potential.

Key Findings

Extreme Volatility

SOL demonstrates exceptional volatility, with the potential for returns exceeding 1000% in the right circumstances. However, this comes at the cost of consistency, with many trades resulting in losses even when using seemingly sound strategies.

Cascade Strategy Excellence

If you're looking for the most reliable approach, buying after multi-day cascades (not just single-day drops) proved to be the most consistently profitable strategy, especially for shorter holding periods.

Higher Severity, Higher Returns (Usually)

More severe drops (15%+) led to much higher average 90-day returns (201.49%) compared to smaller drops. This suggests that fear in the market creates the best buying opportunities for those willing to hold for months.

Random Buying Outperformance

Unlike other cryptocurrencies studied, random day buying sometimes outperformed drop-based strategies for SOL, especially for 30-day holds. This suggests that SOL's volatility and growth patterns may be less predictable and more driven by external factors than internal market mechanics.

Comparing SOL to Other Cryptocurrencies

Highest Upside Potential

SOL's best 90-day return (1081.57%) far exceeded all other studied cryptocurrencies, demonstrating its exceptional growth potential in the right market conditions.

Lower Consistency

SOL's profitability metrics lagged behind ETH and BNB for longer-term holds, indicating higher risk. While ETH and BNB showed 100% profitability for 90-day holds after 15%+ drops, SOL achieved only 57.89%.

Exceptional Long-Term Average Returns

Despite lower consistency, SOL's average 90-day return after 5%+ drops (105.64%) significantly outperformed ETH (23.87%), BNB (72.73%), and FTM (17.56%), highlighting its strong recovery potential.

Conclusion: A Strategy for SOL Investments

Based on our comprehensive analysis, we can recommend several approaches for those interested in investing in SOL:

  1. For risk-averse investors: Focus exclusively on buying after confirmed liquidation cascades, and consider a 7-day or 30-day holding strategy for the highest consistency

  2. For maximum returns: Target severe drops of 15%+ and be prepared to hold for 90 days, understanding that while average returns are excellent, not all trades will be profitable

  3. For diversification: Consider allocating a portion of investments to ETH or BNB after their severe drops for more consistent (though lower magnitude) returns

Remember that past performance is not indicative of future results, and the cryptocurrency market continues to evolve. The exceptional volatility that has characterized SOL may change as the market matures.

What's your strategy for buying cryptocurrency dips? Have you found success with approaches similar to those analyzed here? Let us know in the comments below!

Disclaimer: This analysis is for informational purposes only and does not constitute investment advice. Cryptocurrency investments are highly volatile and carry significant risk. Always conduct your own research before making investment decisions.