How investors use dollar cost averaging with crypto

Many investment advisors advocate  dollar cost averaging as the best investment strategy especially for beginners to get started in bitcoin responsibly. Here we look at this strategy and how to set about doing it. Please check out our site disclaimer as this article does not contain investment advice it is merely intended as education.

How Most Beginners Invest in Bitcoin

Many beginner investors in the crypto use the lump sum buy method and hold their investment. That’s pretty much a strategy that is most heavily hyped all over internet as opposed to actively trading bitcoin. Actively trading is extremely risky and around 90% of investors lose their money because most they don’t have the right skills and methods to be profitable. It costs a lot of time and money to properly learn how to trade and active trading is enormously time consuming. It is also very stressful and relies a lot of on accurately timing movements in the market. Most people simply aren’t good at active trading  therefore  the lump sum buy and hold is probably the easiest and most hassle-free strategy.  Just use the entire allocated capital at once to buy the total amount of bitcoin on day one and then just leave it. If this is done at the bottom of the market this strategy might return a better profit with the least amount of effort. However virtually no one ever succeeds to enter with all the capital at exactly the right time and additionally most beginners usually buy way more than they can afford to lose immediately.  Unfortunately most of them do that at the worst possible time and fall into a mental trap where they are either forced to panic sell at a huge loss or will have to wait years before they see a profit.

The alternative strategy of dollar cost averaging (DCA) is where you will buy a fixed dollar amount on a periodic basis for example weekly or monthly.  This means at higher prices you will buy less bitcoin but at lower prices you will automatically buy more bitcoin.  Over time you will get a decent average price without all the headaches stress and enormous time spent watching the market like active traders do.  Generally speaking dollar cost averaging bitcoin has the following additional benefits.

Dollar cost averaging severely reduces the impact of bad market timing  – it removes your cognitive biases which the market and financial media are constantly trying to manipulate you with. You avoid the fear and fomo (fear of missing out) and you also build up mental tolerance for the violent volatility of bitcoin.  Starting with ten thousand dollars at the beginning will trigger the wrong emotions that could lead to wrong decision making such as panic selling and a loss compared to starting with only $100 in the first month. This way price swings will have a smaller impact on your emotions and over time the amount you hold will increase slowly.

In addition to helping you emotionally deal with the volatility of bitcoin, a DCA strategy helps to avoid fear and fear of missing out.  It makes investing in volatile assets less risky and stressful, far less time consuming. You can set and forget as virtually no investment or trading skills are required.

You can usually dollar cost average with a simple one-time setup in your exchange account. Check out the following articles to discover more:

https://www.gemini.com/cryptopedia/dollar-cost-average-crypto-invest

https://www.coindesk.com/dollar-cost-averaging-investment-strategy

And check out the Dollar cost average calculator here : https://dcabtc.com

 

Add your comment

ajax-loader