How Dollar-Cost Averaging Works (DCA) in Bitcoin
What is Dollar-Cost Averaging (DCA)?
Dollar-cost averaging (DCA) is a well-rounded investment strategy: DCA is best strategy to invest in volatile assets like stocks, mutual funds or cryptocurrency. In this strategy, an investor invests a fixed amount of money at a regular interval which help him reduce the risk of losing more money due to its volatility. So dollar-cost averaging strategy gets rid of detailed work to time the market inorder for the investor to make purchases at the best prices. The other name of dollar-cost averaging is constant dollar plan.
How Dollar-Cost Averaging works in Bitcoin?
Dollar-cost averaging is a good solution to the confusion that if you buy now, you could be buying everything at a high price. But what if the market drops soon after you buy. In this scenario, it’s best to buy bitcoins, say, at ten intervals instead of buying them all in one shot. This gives you a better average price. If the price doesn’t dip, then you buy some more now and then some later at a higher price. Your average price could be higher but you will at least be happy that the price is up and you have made some profit.
This applies to bitcoin, too. DCA works with bitcoin in a much better way compared to other investment plans. Let’s take an investor who used DCA in bitcoin. For each day in the past he compared his returns till November 2019 had he invested everything at once versus dollar cost averaging the bitcoin investment for the next twelve months in twelve equal installments. Say, today was Jan 1st, 2017 and you had $12000 to invest in bitcoin. Do you think it’s better to invest all $12000 at once or to invest $1000 every month for twelve months. In this instance, the future returns for dollar cost averaging comes to about 174%.
Marking the time by buying high and selling low is mostly a zero-sum game for inexperienced investors, regardless of the type of market. However, price action in Bitcoin price charts over the last few years shows that by setting up a recurring buy and dollar-cost averaging into cryptocurrencies is quite less risky for investors, especially for those who are starting out in cryptocurrency trading.
If you are investing in Bitcoin, it’s better to consider DCA in Bitcoin
Bitcoin may not have been covered in the mainstream, but it has streamrolled the $10k barrier. The bitcoin market in 2019 has burgeoned from the bear market. It calls for lower price targets, but people who were waiting for cheaper buy price didn’t transpire, because sub-$3k prices never really materialized. These investors will possibly have to buy in at a much higher price than they intended, but that would have been better served dollar cost averaging as opposed to timing an unpredictable market.
With dollar cost averaging, you can now define how often you want to invest in Bitcoin using the same amount of money. For instance, if you have $1000 left to invest in bitcoin, you can divide it into ten $100 purchases per week or per month, depending upon your convenience.
Highlights of DCA in Bitcoin
The following are some of the major highlights of dollar cost averaging with bitcoin:
- It prevents over exhaustion of larger and all-money-in positions
- It gets rid of the stress of timing the market
- It eases your urge of FOMO (fear of missing out), panic buying and stress-selling
- It helps you create a portfolio that will motivate you to maintain your interest, especially in bear markets
- The impact of short-term volatility is streamlined, as historical performance shows that the gains which can be realized over a longer period of time
- The majority of price action is usually contained within ten days per year and it ensures that you are invested during some major moves in the upside
Why dollar cost averaging in bitcoin is better than normal investing
Bitdroplet lets you create long-term financial goals. Start by investing in cryptocurrencies in small quantities at regular intervals. With the help of bitdroplet, you can invest in digital currencies through SPP (Systematic Purchase Plan), which is quite similar to Mutual Funds’ SIP (Systematic Investment Plan). For now, you can only invest in Bitcoin through bitdroplet, but the list is expected to grow soon.
The principle of Bitdroplet is dollar-cost averaging. Using dollar-cost averaging, you can reduce the average purchase price of the asset as compared to its present market price. Long-term investment in Bitcoin has more benefits as compared to Fixed Deposits, Mutual Funds, Stock Market, Recurring Deposits, etc.
Minimum amount of money you can invest through Bitdroplet is 5 USDT. The amount you invest is channeled through your Bitbns wallet, where the minimum limit of deposit is 15 USDT using P2P USDT Transfer. If you already have USDT in your Bitbns wallet, you can directly invest the USDT that you hold.
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