With the cryptocurrency markets currently in a bearish period, one investment strategy discussed heavily is Dollar Cost Averaging (DCA). For those new to investing/trading, a common question might be what is Dollar-Cost Averaging exactly, and how do I use it for crypto investments? This article will explain what Dollar-Cost Averaging is and how you can utilize it during this bear market.
What Is Dollar-Cost Averaging for Crypto?
Dollar-Cost Averaging is an investment strategy utilized in crypto and stock markets where investors purchase an asset or a group of assets at regular intervals, leading to a lower overall cost basis.
Dollar-Cost Averaging takes the emotion out of the investment and focuses on contributing a set amount of funds during a specified period regardless of the price of the assets.
An example of Dollar-Cost Averaging for crypto could be purchasing $50-100 of cryptocurrency every paycheck you get (every two weeks), regardless of the current price of Bitcoin, Ethereum, XRP, or any other cryptocurrencies.
Keep in mind that Dollar-Cost averaging works over a long period for assets that increase in value. DCA doesn’t save you from a declining investment where it’s better just to cut your losses.
Since Bitcoin, Ethereum, XRP, and other cryptocurrencies outperformed every other asset over the past five years, Dollar-Cost Averaging is advantageous for crypto investments. It’s much safer than putting your life savings in crypto at one time since you can end up timing the entry position wrong.
Did you know that 401k plans use Dollar-Cost Averaging for their investments? Since contributors set a certain amount of funds out of their salary to contribute every month, they all utilize DCA to achieve a lower cost basis for the appreciating assets.
How to Use Dollar-Cost Averaging in Crypto?
As mentioned earlier, the best way to use the Dollar-Cost Averaging investment strategy for crypto markets is to set aside a certain amount of funds every two weeks to 1 month and invest it into any of the top 5 or top 10 cryptocurrencies.
The best part about this investment strategy is you won’t be as worried about the short-term price volatility of Bitcoin and other cryptocurrencies. With the way crypto markets usually move, it’s a long and painful few months of a bearish trend followed by significant price growth in a short period. Your lower overall cost basis and lack of emotional attachment to your investment will make it easier to hold through the bear market.
Those who believe Bitcoin is king should stick to BTC. Those who believe in NFTs and smart contracts could stick to Ethereum, BNB, or Solana. Those who believe in the future of DeFi, Yield Farming, and Stablecoins could look at Avalanche or Terra Luna.
Any of the top 10 cryptocurrencies have tremendous long-term potential and will likely continue their price growth. The $100k BTC is yet to be achieved, and the market is still far from its peak.
While this year has been rough for cryptocurrencies, one could see significant price growth over the next 3-5 years by exercising the DCA investment strategy.
Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency.
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