Cryptocurrencies have been gaining a lot of media attention over the last couple of years, in the aftermath of the FTX exchange crash and amid the SEC’s relentless war on crypto. However, when you dig beneath the surface, you’ll find a community that’s very much active despite one of the longest bear markets. If you know anything about cryptocurrencies, you’ll have realized how volatile the market is, which makes it difficult to make logical guesses on when to trade. The solution to this issue is dollar-cost averaging (DCA).
What Is Dollar-Cost Averaging?
DCA is a popular investment technique used for crypto and other assets including stocks, bonds, and commodities. There’s nothing complex about DCAing, which is why it’s such a popular strategy. In the simplest terms, DCAing involves investing a fixed sum of money at a fixed interval (daily, weekly, monthly, annually).
The principle behind DCA is that the markets increase in value over time, but the volatility is difficult to track. When you buy periodically regardless of the value, you’ll make up for notable losses over time.
Eliminates Poor Timing
Making large investments in Bitcoin would have paid off before it gained traction almost a decade ago. In 2023, despite the crypto crash, Bitcoin is consistently stronger than any other decentralized asset. However, the returns on large investments aren’t anywhere near worth the risk involved, which is where DCA comes to the rescue.
Can Be Rewarded by Bitcoin Platforms
When interacting with Bitcoin, you need to use a reputable platform that understands the value of blockchain-based assets. In the case of Bitcoin, it’s worthwhile looking into services like Swan and River Financial, which reward DCA investors with little to no fees. Even when there’s a spread added in place of investment fees, the cost is minimal when compared to other services. If you want to learn more about these platforms, read Swan Bitcoin and River Financial reviews to make your own decision.
Removes Emotions from Investing
Many investors fall into the trap of leading with emotions, which can lead to enormous losses. For example, if a promising investment drops significantly, some investors withdraw at a loss out of fear of “losing more”. On the flip side of this, many investors experience FOMO (fear of missing out) and drop large investments when the bull market is underway. These emotional issues can all be eliminated by DCAing because of its mechanical nature.
Doesn’t Replace Good Research
Choosing DCA may be great for making profits over a long period, but it’s not a miracle cure for a bad investment. For example, if you choose to DCA on a coin that’s on a persistent downward spiral, you’ll suffer a long-term loss. Therefore, before you choose to DCA, you must do your own research (DYOR) to find out whether Bitcoin or other crypto coins are worth your investment.
If you want to start investing in Bitcoin but can’t decide on a suitable trading strategy, then put your trust in DCAing because it’s tried, tested, and verified profitable for this asset.