This strategy will change the way you invest in the cryptocurrency market.
In the cryptocurrency market, Bitcoin is pricey. Not everyone can afford Bitcoin and people who can reap the rewards, making the critics envious. But there is a way where everyone can invest in Bitcoin cheaply. Known as the dollar-cost averaging, it is an investing strategy that can lower the amount of Bitcoin and minimize risk. The logic is simple, instead of investing huge amounts of money in one go, dollar cost averaging refers to buying small amounts at regular intervals, despite the price. Over time, this method will result in increased returns.
This strategy manages the price risk when you’re buying large assets like Bitcoin. Instead of purchasing an asset with a single purchase at one price, dollar cost averaging divides the amount that needs to be invested to buy small quantities at regular intervals. This decreases the risk before the price drops.
Dollar-cost average only works for long-term investments where asset prices tend to rise. In short term, asset prices do not change constantly. Instead, the short-term highs and lows that the market experiences do not follow any predictable pattern. When the price is low, many investors have tried to time the market and buy assets. But according to professional stock pickers, it is easier said than done.
Dollar-cost averaging makes investing more practical and less emotional. It makes an investor buy fewer assets when the prices are high and more when the prices are low. Speaking about practicality, this method will help those crypto investors who only have small amounts to invest. Often, such investors don’t turn towards Bitcoin as the price is always higher than every other cryptocurrency in the market. Even when the price dips, other cryptocurrencies like XRM, Litecoin, and Bitcoin Cash will have their prices lower as compared to the leader of the cryptocurrencies. Dollar-cost averaging gets a smaller amount of your money in the market regularly. This way, an investor doesn’t have to save up huge amounts of money and wait for the time to come. In dynamic markets like cryptocurrency where price volatility is a major drawback, waiting for the right time might take away so many opportunities to make profits. Rather than crying over spilled milk, dollar cost averaging is an expert’s way to evade mistiming.
How Does It Work?
The dollar-cost average can be divided into two components – the fixed amount to invest and the regular interval to invest that amount.
For example, let us assume that the fixed amount to invest in is US$100. That is how you can afford to risk in the cryptocurrency market. In your first month, you spend US$100 to purchase a fraction of Bitcoin. As you keep investing that amount every month, you will notice that during some months, you will be able to purchase more Bitcoins because of price volatility. This way if you have a five-year target, you will be consistently funding your investments for those five years and putting money in the market, rather than timing the right moment. This is an effective strategy in the cryptocurrency market. The same can be used for Ethereum, Binance coin, Ripple, etc. Another important aspect to remember here is to choose the right asset to invest in. This will require dedicated research and analysis. Dollar-cost averaging only works when you keep investing in one particular asset. Hence, choose the most reliable option to safeguard your investments.
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