Some investors might have ventured into cryptocurrency purely due to their fascination with the technology. They recognized the potential impact of blockchain to revolutionize industries, and they willingly dedicated funds to support its growth. Any profits reaped along the way were indeed a lovely bonus.
The majority of investors, however, were drawn by those jaw-dropping potential returns. They envisioned turning a modest sum into a brand-new luxury sports car. In some cases, people optimistically overloaded their credit cards during the last market surge in December, expecting the ensuing value increases would outstrip the interest charges. Unfortunately, the market then crashed severely. Bitcoin millionaire There's still substantial money to be made in the world of cryptocurrency. However, the same factors that attracted a slew of new investors — the dramatic price oscillations — pose significant challenges for serious investors. The market is still young, lacking well-established patterns or proven strategies. Believe it or not, most participants are essentially speculating which tokens might skyrocket next. Experienced investors may have a slight edge, but no one can predict the future with certainty.
Fortunately, some age-old investment principles still hold true. Employing a dollar cost averaging (DCA) plan can help mitigate some of the risks associated with cryptocurrency investments.
A DCA method operates on the belief that over time, the market will generally trend upwards. The aim is to strategically inject money into this upward-leaning market at specific intervals, ultimately yielding a reasonable average buying price.
Smoothing the Graph
Consider a perfect crypto price chart spanning two years. It would have sharp fluctuations but mostly indicate an upward trajectory. Now imagine a straight line running from the initial price point to the final one, slicing through the myriad ups and downs. That's the trajectory a DCA strategy focuses on.
DCA essentially removes the uncertainty out of crypto investments. It eliminates the necessity to predict market movements or worry about buying during market highs or lows. Gradual investments spread over time result in a balanced average price, effectively flattening the volatility curve.
Deploying a DCA strategy might not sound thrilling. It’s akin to the monotony of a nine-to-five banking job compared to the high-stakes excitement of a bank heist. But that monotony has its perks. Even the modest gains achieved thus far in the crypto space outshine the wildest expectations of Wall Street and other conventional investment platforms. Opting for a low-risk, steady approach is entirely justified, especially in a market poised for long-term growth that is almost inevitable. Plus, you avoid any literal risks — unless, of course, you're John McAfee. CoinMarketCap First off, determine how much you want to invest and over what duration. Set a budget and a timeline. How much can you afford to allocate to crypto, and over how many weeks, months, or quarters?
Low Risk, Low Reward
The exact amount is flexible — it should be an amount you can risk without stress. Avoid pushing your credit limits
or using credit cards to fund crypto investments.
Reflect on the timeline in terms of weeks, months, or even longer, considering the rapid pace of the crypto scene. It's tempting to refresh your browser nonstop, watching the real-time fluctuations of your chosen crypto asset. But try not to fall into that trap. It's about patience and foresight. Once your budget and timeline are established, slice the budget into regular installments and arrange consistent purchases. This might be the toughest aspect of DCA. Committing to buys on schedule can be challenging, especially when the market seems about to nosedive or shoot up. Keep in mind, it’s not the jagged volatility that matters, but the smooth upward path to potential gains. .
At times, your investment might feel off. You’ll inadvertently forgo profits during bullish phases and might overlook golden buying opportunities.
Yet, avoid letting hindsight cloud your investment decisions. If a crystal ball existed, every investor would have already seized it.
Thus, the plan is to make consistent purchases over an extended period. This will gradually lower the average cost per coin while funneling enough traditional currency into the market to start observing gains.
But which specific coins suit this strategy best?
What to Buy?
Virtually all are applicable. Though not every coin guarantees profit, diversifying your portfolio increases your odds of success.
A well-established coin, like Bitcoin, is likely to accrue value incrementally. Some lesser-known coins may underperform, while others might increase dramatically in worth. By spreading your investments across a broad spectrum of coins, you apply the timeframe element of DCA to your overall investment.
Imagine investing in coins A, B, and C. Coin A, a stalwart of the market, boasts a proven utility, solid technology, and a reputable team, but it’s more of a steady tortoise now. Coin B, a bold newcomer, offers little beyond tantalizing hype, but the enthusiasm is contagious. Lastly, there's Coin C — your personal favorite. Maybe it doesn't have the flash or gravitas of the others, but you believe in its untapped potential.
Distribute your allotted investment across all three coins. It’s possible that long-held A could stumble, while B shuts down operations, and C surprises you with extraordinary achievements. Diversifying your investments across numerous assets steadies the peaks and troughs, similar to how spacing out investments over time does.
Bear in mind the long-term nature of DCA. Imagine your portfolio being in the red during a widespread market dip. Such is the turbulent landscape of crypto.
DCA offers a safe approach for markets anticipated to ascend over time, a sentiment most align with regarding cryptocurrencies. Although it won’t make you an overnight millionaire like some quick-witted Las Vegas stunts, it keeps you financially involved throughout both prosperous and challenging times.
The main principles here are consistency and self-discipline. Adhere devotedly to your planned schedule and timeline, no matter how much your instincts scream otherwise. Remember, trying to predict market behaviors directly contradicts the DCA ethos. You’re racing a marathon, not sprinting short distances. By the end of your strategy, you should have a reasonable average cost per coin, keeping you calm even during market downturns. A bit of profit in your pocket could well be in the cards.
Conclusion
Editor-in-Chief of Blockonomi and founder of Kooc Media, a UK-based online media enterprise. An advocate for Open-Source Software, Blockchain Technology, and an Equitable Internet for everyone.
His insights have found mention in outlets like Nasdaq, Dow Jones, Investopedia, The New Yorker, Forbes, Techcrunch, and more. Reach out at [email protected]
