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Crypto Currency Investment Strategy; Dollar Cost Averaging

If you haven’t read part 1 of this article I strongly suggest you read it first.
Crypto Currency Investment Strategy

The first article will explain the different investment rules that you should apply to your investment strategies. 
After understanding the different investments rules I’d like to show you another strategy that you may apply in the Cryptocurrency Market as it is very volatile. This method can be very effective when used properly.

Not only can this strategy benefit the beginner investors but also advanced investors who are looking to increase their financial awareness. Personally, investing in yourself with education and knowledge would be the best investment you can make in your lifetime. Remember to take action an apply this knowledge in your routine.

White Bitcoin can be very volatile the best thing you can do is Dollar Cost Average your deposits over time. So Lets get started;

Dollar Cost Averaging

What is Dollar-Cost-Averaging? (DCA) –  is an investment strategy with the goal of reducing the impact of volatility on large purchases of financial assets such as equities. The dollar cost averaging strategy is aimed at reducing the risk of incurring substantial losses resulted when the entire principal sum is invested just before the market falls. via Wikipedia

To Further understand what DCA is, I have put an example together.

Dollar Cost Average Example;

I will base this example with whole numbers on Bitcoin (BTC) so it is easy to comprehend with no decimal points etc…. Lets say you have $1000, you want to invest that into bitcoin and you have no technical analysis, trading experience or no idea how to figure out what a decent price to purchase bitcoin at. The DCA will help you average out your purchase price to minimize your losses if the market doesn’t go the way you expect.

Example; Lets just say Bitcoin’s Price is at $100 and you have $1000 to invest…If you were to have invested your entire capital you would have 10BTC and if the market drops 20%. The USD value of 10BTC  would be $800, which is a loss of $200 or 20%. Which can be high..

By DCA your capital would mean to spread out your investment over time at different prices rather than investing lump sums at 1 time at 1 price. This can be effective for short term and long term holders.

If you were to use this method, lets divide the $1000 capital into 4 with a DCA investment of $250. In the example below the time frame will be quarterly for ease of understanding.

  • Q1 – Price Per BTC at $100 – Capital $250 = 2.5BTC
  • Q2 – Price Per BTC at $125 – Capital $250 = 2BTC
  • Q3 – Prce Per BTC at $75 – Capital $250 = 3.33BTC
  • Q4 – Price Per BTC at $110 – Capital $250 = 2.27BTC

Total Investment Capital $1000

Breaking it Down

  • Sum up quarterly  prices – 100+125+75+110=410
  • Divide – 410/4 (4Quarters) = $102.5 DCA 
  • Sum Total Bitcoin shares 10.1 
  • 10.1 BTC x current BTC rate of $110 = $1110

Comparing to purchasing BTC 1 time at $100 you would have only 10BTC. With the example above DCA the investment resulted in higher amount in BTC which has a current value of $1110.

Conclusion

The DCA strategy can be applied to not only crypto currency, but other investments such as stocks, index funds and more. Applying the DCA strategy can be highly effective when entering volatile markets such as crypto currency. At the time of this writing Bitcoin’s price is fluctuating between $400-$1200 a day. Finding an entry point can be a challenge.

Remember to be creative when investing, find your own technique and timelines to invest. DCA the dips and sell the highs. Its entirely up to you. The more creative you are with how you strategize the more possibility of success.

Happy Investing.

Disclaimer
This is not investment advice

 

 

 

 

 

 

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