If you’ve been paying attention to the hype, you’ve probably noticed that cryptocurrency has been a fairly lucrative manner of investing recently. In fact, you may even be suffering from a bit of fear of missing out if you have yet to take part in this trend. The reality is that crypto provides a good option for people wanting to diversify their investments. Many investors, however, are reluctant because crypto is highly volatile and price action is hard to predict. Dollar cost averaging into crypto is a useful investment strategy that reduces risk and simplifies a complex market for both new and seasoned investors.
What is Dollar Cost Averaging?
Dollar cost averaging is a very easy method to understand and is already commonly implemented by stock investors. This technique entails taking the total amount of money that you would like to invest in something and dividing it over several periods of time.
Let’s suppose, for example, that you want to invest $2,000 in cryptocurrency over the course of a year. Instead of making one $2,000 investment, DCA would have you divide your investment into equal installments over preselected periods of time. You could, perhaps, invest $77 every other Monday or $167 on the 15th of every month. You can do this manually or by setting up reoccurring buys.
What are the Benefits of Dollar Cost Averaging?
DCA has a number of benefits for the investor. Below are some of the major pros of using this strategy when investing in crypto.
Reduce Your Risk. Investing over time means you will be making purchases when a market is high and when a market is low. This helps reduce your long-term risk and helps ensure you won’t be a victim of volatility, which is particularly important for very volatile investments like crypto.
Survive Downturns. No one likes experiencing a downturn; however, a DCA strategy helps you reduce how a downturn affects you. It also means you’ll continually buy during a downturn, which should lead to good returns on these investments when the market recovers.
No Need to Predict the Market. When you invest with one lump sum purchase, there is pressure to do so when the market is poised to increase. However, predicting markets in the short-term is difficult even for seasoned investors. With dollar cost averaging, there is no need to try to predict it.
Final Thoughts
Ultimately, dollar cost averaging is a lower risk strategy for investing. It is particularly useful with cryptocurrency investing due to the unpredictable nature of the market. While you typically will generate more transaction fees with this strategy, it will tend to have a more reliable long-term payoff than other methods of investing. DCA is also a great strategy if you don’t want to keep up crypto prices day-to-day. This is a stash it and forget it method. If you’ve been wanting to invest in crypto but are worried about volatility, DCA is the method for you.
Linked below is a DCA calculator to help you get started.
Dollar cost averaging calculator: https://www.dca-cc.com/
If you choose to dollar cost average for the long term then it could pay of incredibly well. Check out Ark Invest’s predictions for the price of Bitcoin by 2030: Ark Invest Report Predicts Bitcoin to $1M and Ethereum to $180,000 by 2030
This article is not meant to be financial advice, but to help you learn about a method of investing that you might choose to consider.
