Investing in cryptocurrency for the first time can be overwhelming and confusing! There is so much volatility in the market, with the value of even the most popular currencies like Bitcoin and Ethereum fluctuating by up to 40% in a two week period!
Imagine if you invested in Bitcoin and it suddenly dropped in value by 40% in the two week period after you invested. Would you know what to do? In this article we’re going to focus on a simple strategy called dollar-cost averaging which is a great way to get started for beginners, but also quite popular amongst experienced investors!
Read on to find out more about this investing strategy that is a great way for you to get your feet wet with investing in crypto.
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What Is Dollar-Cost Averaging?
Dollar-cost averaging, or DCA for short, works by helping to reduce the risk of investing in cryptocurrency where price fluctuations are incredibly volatile.
This assumption lies in the future potential of the market you choose to invest in. The aim is to invest a fixed amount at regular points along an upward trending timeline, regardless of the crypto coin price.
Dollar-cost averaging is a strategy based on the belief that the market you choose to invest in will more than likely rise in value.
Is Dollar-Cost Averaging A Good Strategy?
DCA is an excellent strategy to use as the risks and rewards are low. If you believe in the future potential of crypto, then dollar-cost averaging is an excellent way to begin investing in it!
Let’s imagine a graph with an upward trending timeline. The shape of the timeline is jagged, which indicates there have been many peaks and troughs along the upward scale; this is not unusual in the world of crypto, as prices fluctuate, some more than others.
Now, if you were to use dollar-cost averaging in this scenario, there would be pinpoints along the timeline at regular intervals to show when you invested in that market. Some days you will purchase coins when prices are low, and some days they will be higher; this means throughout the timeline, your investment has averaged out because you did not purchase all your coins at once.
What Should You Buy?
Using the DCA strategy, you can invest in various cryptocurrencies that you can see have future potential.
You may want to invest in two or three markets. If so, it is worth choosing a coin with a strong history, like the two most popular cryptocurrencies – Bitcoin or Ethereum. These coins fluctuate more than a stablecoin for example, but that’s part of the point!
Another strategy that is much more volatile is to research “Altcoins” that you think has potential – based on a trend or it’s underlying technology. You can make insane returns on altcoins, but you could also lose all the money you put into them, so we’d recommend that Altcoins are only a small percentage of our portoflio.
If you want to go ahead and start investing using the dollar-cost averaging strategy, then you may want to think about setting up a ‘recurring buy’.
What Is A Recurring Buy?
A recurring buy allows you to schedule purchases frequently / at an interval you choose. Dollar-cost averaging works best when investments are made frequently. For example, you may want to make a purchase twice a month on a Wednesday.
Sites such as Coinbase allow you to set up recurring buys which makes setting up a Dollar-cost averaging strategy really easy. Once the recurring buy is set up, Coinbase will purchase for you and require a payment method.
Recurring buys are ideal for planning and are handy if you lead a busy lifestyle where you may forget to make frequent purchases. And besides who wants to do the same thing over and over again when a computer can do it for you and won’t forget!
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble” – Warren Buffett.
When we see or hear the term ‘value investing’, we think of the infamous business mogul, Warren Buffett.
Buffet is considered one of the most successful investors in history, and his methods are a combination of pure talent and hard work.
Traditionally, value investing is an investment strategy that involves choosing assets, stocks (or cryptocurrency) that appear to be trading for less than their value.
Investors may approach a stock they feel the market has underestimated, hoping that they can profit from such an opportunity. Such decisions are not made lightly, and potential investors will often read through financial reports to gauge the future potential of a company before investing.
Value Investing In Crypto
Value investing can be tricky when used as a crypto strategy as crypto is a relatively new commodity, so there is not much history to look at in terms of market history.
Also, there are no financial records to analyze when conducting research. Therefore, investors should instead look at the following factors when conducting research.
A ‘white paper’ is a document issued by a company that gives details about what kind of services, products, and solutions they offer. Most cryptocurrencies and coins publish technical whitepapers that explain what makes them different in the crypto space.
What does the history of this coin show? Has the coin crashed or risen dramatically as of late? And what does the future potential look like?
The beauty of the internet is that we all like to share our opinions. Looking at what others have to say about this coin will give you an idea of how good or bad an investment may be. Of course, you can’t trust every opinion you read online – especially in the Crypto space, but there are some intelligent essays and podcasts that advocate for different currencies and explain their underlying technological innovations.
Another tip is to find out how widely the coin is used and whether or not it is exchanged frequently. Taking a look at what kind of blockchains a coin runs on is also another good tip, as some are preferred over others.
Value investing in crypto is relatively new and may require a combination of different strategies to find the answers you need. However, it can be done!
There are many ways to invest in crypto, and one strategy is dollar-cost averaging; this is ideal for investors who see future potential in a particular cryptocurrency that could possibly return a yield over time. The most common cryptocurrencies we see this applied to are Bitcoin and Ethereum as they are the current front runners in crypto.
Investing using the DCA strategy is a really solid initial investment strategy, if you believe that the price of Bitcoin and Ethereum will continue to rise over time. Your purchases will get averaged out over time. You can use recurring buys on some of the popular exchanges like Coinbase to set this up automatically so you don’t have to think about it after you set it up! Of course, if you’re more of a daredevil you can trade crypto more frequently and try and time market cycles, but for beginners we really don’t recommend this as you’ll be on a very difficult emotional rollercoaster. The most stable long term strategy is to use dollar-cost averaging with the hypothesis that the value and price of cryptocurrencies will continue to rise as adoption increases throughout the world.
Remember though, you shouldn’t invest any money in crypto that you aren’t willing to either lose or see a huge drop in value. If you put all your money in crypto and then the market crashes in the short term, you don’t want to be forced to sell because your can’t afford groceries.
With that said, good luck!