"I bought Bitcoin, and lost over half of it, I don't recommend it.”
"Cryptocurrency is a highly erratic market; I've experienced significant losses".
“I'm considering investing in crypto, but several friends tell me that they have just been losing money.”.
We believe at least once, but you have already heard something similar. In fact, cryptocurrency is subject to significant variation, but experienced investors know that there are multiple methods of "overcoming" this market.
One of the strategies is the Dollar Cost Averaging (DCA) method. Using it, you purchase the same volume of assets on a regular basis. If you want to make money without taking a lot of risk and are prepared to invest in the future, we recommend that you consider this further.
What DCA is: based on examples
Let's discuss the process on the example of Bitcoin.
Imagine that you had a successful financial year in 2021 and were able to save $5,000. As a financially intelligent individual, you want your money to prosper, so you chose to invest in BTC. On January 1st, you purchase the full amount for the following data.
In September of that year, the price decreased to $20,000. This implies that your 0.10 BTC is now valued at $2,000. Losses are 60%.
Using DCA, you would pay $555 every month.
As a result, in September you'll have 0.16 BTC, which is $3,200. This is a loss of 36%, which is approximately half of the total loss.
Does it have a larger impact on smaller amounts?
Let's take $1,000 and calculate the same way as mentioned earlier. In January, you purchase the full amount again.
In September of that year, the price decreased to $20,000. That is, your 0.02 Bitcoin is now valued at $400. Losses are 60%.
DCA allows you to invest $100 every month:
As a result, in September you'll have 0.035 BTC, which is $700. The loss was 22.26% - this is the loss associated with the investment.
The most important aspect is that with this investment strategy, the volume of the asset increases, and when the market grows, the money will be more profitable.
What are the advantages of DCA?
1. You will purchase more when the price is low, and less when it is high. This method is similar to insurance, and when the market increases, you will have a chance to recover your losses.
2. You lower the average value of the asset (in comparison to the original total value). As you observed in the preceding examples, acquiring a large amount in one go is more expensive.
3. You make a decision once, and are not influenced by your emotions. In an ideal world, this would follow the pattern of: once you choose to follow DCA, you don't deviate from your approach for a long time. This prevents the market from spiking, and prevents you from suddenly selling everything before the price declines even more.
4. You develop the tendency to invest. You will not analyse the monetary value of coins every day, but you will purchase them every month or week. This promotes a useful habit that utilizes the money's capabilities, and doesn't rely on its fate in a crypto wallet that you forgot about.
Who is a DCA strategy best for?
This strategy is most effective for two types of people:
Type 1. You don’t want to deal with cryptocurrency 24/7. Rather than waiting for the perfect market entry point, opt for the conventional approach.
Type 2. You don’t have much money. Not everyone has the opportunity to invest $1,000 when market conditions are favourable. The $100 per month option is more realistic.
