One of the most popular crypto wealth-building strategies is Hodling, but there is another angle to holding that most crypto newbies are not aware of. Holding is a long-term strategy where an investor aims to hold a coin over a period of time. The aim is for the coin to move from point A (low price) to point B (high price). However, there are ways an investor can still make more out of the holding method and we shall be exploring the dollar-cost averaging (DCA) strategy.
What is Dollar-cost averaging (DCA)?
In dollar-cost averaging, an investor invests in bits over a period of time instead of investing a lump sum at once. The aim is to take advantage of the downtrends of the market thereby increasing profit. With DCA a newbie can make the best out of the crypto market by taking advantage of crypto downtimes and topping his portfolio with every price fall. In the end, the coins will be sold for higher profits.
Dollar-cost averaging is a traditional investment tool used by the stock market and index funds and can be applied to cryptocurrency. DCA will aid the investor to protect his funds against loss as well as increase the profit margin. This method of trading is best suited for newbies aiming to invest for the long term and would easily begin to panic when the market dips. Also, most experienced traders utilise this method instead of trying to time the market to get the best price.
Also Read: How to become a successful Bitcoin trader
How Dollar-cost averaging Works
In dollar-cost averaging, an investor invests in bits over a period of time instead of investing a lump sum at once. Essentially, the aim is to take advantage of the downtrends of the market thereby increasing profit. So, an investor who wants to invest $500 in Coin A will have to split the funds into 3 places. Let’s say he has $200, $150 and $150, he can get in to buy Coin A at $1.4 which gives him 142.8 coins. If the price of the coin drops to $0.9 he would invest portion two ($150) of his capital giving him 555.5 coins. If the price drops to 0.72, the investor gets 694.4. However, if he had invested the lump sum at $500, he probably would have gotten 357.1 coins in total instead of 1392.7 coins. When the value of the coins goes up, the investor will have more profit.
One of the benefits of DCA is that it takes off the emotional aspect of trading, especially during the dip. However, if you invest bits of your funds and the market decides to do a bull run, you’d be missing out on a lot of profit. There is also the downside of transaction charges that you may incur while buying in bits. In the end, DCA is a long-term strategy that aids investors for the long term while taking advantage of depreciating assets.
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