Cryptocurrency is generally used as an investment tool, and that means you need investment strategies to turn a profit. One of the most common is Dollar-Cost Averaging, but what does that mean, and how is it supposed to help?
Here is what you should know about DCA investment with cryptocurrency, whether you are a newcomer or already have experience with this kind of thing.
What Is Dollar-Cost Averaging?
DCA investments are an alternate investment strategy that removes emotion and unpredictability from trades, mainly through a set plan that you follow regardless of the currency’s value.
For example, say a certain currency is worth $20 per coin. You might decide to invest $20 weekly for several weeks, ignoring the changes in market conditions as long as they do not swing too far out of your favor. Eventually, you will have invested the amount you planned to invest anyway.
In theory, this means that you are still investing your preferred amount—say, $200 over 10 weeks at $20 per week—but not all at once. Instead of risking $200 if the market tanks during one of those weeks, you are only risking $20.
Why Is Dollar-Cost Averaging Useful?
No matter how low the value becomes, there is never a ‘best time’ to invest in a currency because there is no guarantee that it will rise again. Crypto values are inherently unpredictable and hard to work with, so the more you have invested at once, the more you can lose.
The idea behind following a DCA crypto guide is to buy coins at different prices, some lower and some higher. Either way, you are never investing everything at a single point, so the value you have paid should average out at the target price anyway.
Trade Timing
Timing trades can be extremely hard, but it also comes with the risk that you will delay or rush your trades because you think you will get a better deal. You might invest earlier than planned because the price has dipped, but it will dip further anyway.
By following a structured and pre-determined schedule for your trades, emotion is removed from your decisions. Has the price risen? As long as it is not too high, buy it anyway. Has it dropped? Buy it when you plan to buy it since you might miss that window of opportunity. Here, you may know about bitcoin-profit.org, the best platform to earn profits on crypto.
Total Value
A DCA trade still leads to you investing the same amount of money, although the outcome will change dramatically. You will usually get the same outcome in stable markets, but in volatile markets, this can be far more effective than dumping everything into the currency at once.
Some of your trades will cost more than expected, and others will be cheaper. Ideally, this will balance into an average you are comfortable with, meaning you did not underpay or overpay too much for what you wanted.
Every crypto strategy has pros and cons, and Dollar-Cost Averaging is not perfect. However, it has value in the right circumstances, and sometimes, it’s the ideal way to approach a currency that constantly shifts in value.
