If there were any better time to get started in the cryptocurrency market, it would be today.
From the top coins to the meme tokens, the entire crypto sector is deep in the red. Bitcoin is down nearly 60 percent, Ethereum has lost more than 70 percent, Cardano has plummeted 67 percent, and Dogecoin plunged 59 percent.
Will digital currencies ever reach a bottom? The crypto industry will inevitably hit rock bottom, but it is anybody’s guess when that will happen.Some analysts argue that Bitcoin will hit bottom when it touches $15,000. Others purport that cryptocurrency and the broader equities arena have not even come close to hitting bottom yet.
“Adjusted for inflation, 2022 first-half S&P 500 down 25-26%,and Nasdaq down 34-35%, Bitcoin down 64-65%,” Michael Burry, the ScionAsset Management Chief and who Christian Bale portrayed in the 2015 motion picture The Big Short, tweeted. “That was multiple compression. Next up earnings compression. So, maybe halfway there.”
This could be bad news for short-term investors looking to get rich quickly, like in 2020 and 2021. However, for long-term investors who are ultra-bullish on crypto, this could be a terrific opportunity to either dive into the industry or begin piling up positions. Perhaps the best strategy in all of this is to dollar-cost averaging crypto.
But what is dollar-cost averaging, and how does it work? Let’s explore one of the best investment tactics for long-term investors who embrace the broader buy-and-hold endeavour.
What Is Dollar-Cost Averaging?
Dollar-cost averaging, or DCA, is when investors divide the total amount of funds to be invested in a security throughout regular intervals. For example, here is the most common initiative for dollar-cost averaging an asset, be it a stock or crypto:
· January 6: $500
· February: 6: $500
· March 6: $500
· April 6: $500
· May 6: $500
· June 6: $500
Ultimately, you are making the same purchase on a pre-determined date every month. Of course, you do not necessarily need to put together a pre-planned schedule of acquisitions for DCA.
You can also buy dips to DCA down. If Acme International shares or Shiba Inu drop, you will purchase and grow your positions each time there is a dip. This way, you can lower your average and prevent being doused by rapid selloffs in the financial markets, especially in today’s bear invasion.
Does This Really Work for Crypto?
The short answer is yes. The long answer is also yes.
Because cryptocurrencies are extremely volatile, it can be challenging to get into the market at a reasonable price. It is hard to time in this environment. This is why DCA is crucial for long-term crypto holders.
Even if you bought in at the peak late last year, you could still reduce your average price with DCA.
Let’s use Litecoin as an example.
If your strategy is to buy periodically or to engage in the buy-the-dip mentality, here is what your buying history would look like if you purchased a single token:
· September 2021: $179.72
· October 2021: $190.91
· November 2021: $258.09
· December 2021: $163.05
· January 2022: $131.30
· February 2022: $140.17
· March 2022: $104.97
· April 2022: $114.43
· May 2022: $94.57
· June 2022: $47.68
· June 2022 (again): $45.04
So, using a dollar-cost averaging crypto calculator, your average price in your cryptocurrency trading account would be $133.63.
This is a superior strategy to just buying at random, preventing you from potentially buying high and selling low.
One piece of advice: Be careful about the fees associated with each transaction. Depending on the platform you utilize, you may be forced to fork over a fee per purchase, which will eat into your profits, add to your losses, or diminish your DCA tactic.
Don’t Think About ‘What If?’
Many investors will immediately think of the “what if?” if they see an investment rally “to the moon.” What if they executed a lump sum trade before the big move? What if they monitored Reddit’s Wall Street Bets page more? What if they bought the security when it fell below $10?
While there will inevitably be times when a stock or virtual token will surge but hardly give you a profit beyond your average value, this is rare. Remember, you are holding these investments for the long term rather than overnight, hoping to run off with a 30 percent gain in a couple of hours. This is dangerous.
Pulling this off requires intense financial knowledge, plenty of research, incredible timing, and a bit of luck. Instead, it is crucial to just gradually build your position over time, knowing that the market is cyclical. Sure, you might not receive an exceptional payday in a few months or a couple of years. However, your returns will eventually materialize if you are bullish on the crypto’s fundamentals and utility.
Ready to buy the dip and take advantage of low crypto prices? Bitbuy is Canada’s most trusted cryptocurrency platform. Get started today and HODL!