The Best Crypto Buying Strategy: Dollar Cost Averaging

It’s not often that those new to crypto, and those who have invested for a while have something in common, but there is one question that both groups of people often ask themselves, and that question is “when should I buy?”.

The obvious answer would be, “well, you need to buy low and sell high”, but what about when that “low” goes lower, and that “high” goes higher, causing lower than expected gains, or even worse, bigger losses? It’s easy to fall into a trap of buying when the price is on the way up, or even hitting its top, and selling when it’s low with the thought of “stopping further losses”.

The fact is, no amount of technical analysis and pouring over charts can predict the future price of a cryptocurrency, so many beginner and long term investors perform the strategy of crypto dollar cost averaging.

Dollar cost averaging (DCA) is when an investor buys a set amount of an asset at a particular time interval, such as $15 worth of Bitcoin a week, regardless of its price, market volatility, or what analysts and experts are saying will happen in the future.

This strategy is popular for longer term investing, as it averages out the purchases of the asset over time, allowing the investor to ignore the daily price action of crypto, removing the question of “when should I buy?”.

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The formula for investing is extremely easy, it’s easier with the employment of an app to help automate the investing, or an investor can manually buy each time. An added benefit is that dollar cost averaging can be implemented regardless of a persons’ income, as the strategy calls for low-cash outlay investments.

Buying $50 worth of Bitcoin every two weeks from March 1st 2021 to today would have given a return of 115%, or a profit of $3,000. Trying to time the market during that time could’ve seen traders make heavy losses trying to time the market in mid 2021, where BTC’s price went from US$60,000 to a low of US$31,000.

DCA does have some drawbacks, as it’s less risk, it will mean less reward, but remember, this strategy should be thought of more as a risk management strategy. Using a DCA strategy also means that you might pay more in fees when using a crypto exchange, as those will charge every time you wish to buy.

Like any investment strategy, dollar cost averaging will pay off if the value of your investments rise, but it could be a much better option if you’re looking to minimise risk in comparison to lump sum investing.

If you plan to adopt this strategy, make sure it aligns with your goals, and check to ensure how much you’ll be charged in fees with your chosen exchange.

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