The Case for Dollar-Cost Averaging
Imagine you have two friends, Arun and Bina. Both invest in crypto, but follow different strategies as they invest.
Arun bought $5,000 of BTC on Jan 1, 2018 – all in one go. The price at the time for one coin was $13,800, so he ended up owning 0.362 BTC.
Bina’s strategy is different. Instead of investing the whole amount in a lump sum purchase, she decided to invest $500 every month, for 10 months. 10 months later, Bina owns 0.61 BTC. That’s almost twice as much as Arun, even though both invested the same amount.
How’d that happen?
By spreading out her investment over time, Bina protected herself against Bitcoin’s volatility, and used it to her favour. This is the power of dollar-cost averaging.
It’s an SIP in Bitcoin.
Many people learn about Bitcoin during a bull run, when they hear about the prices going up. It’s easy to feel FOMO at such a time, and a lot of people invest, only to see the value of their holding drop almost immediately.
Nobody can time the market, and it is futile to try.
Instead, try investing a fixed amount of money every week, month or quarter – whichever you prefer.
By sticking to a fixed schedule, any “emotional” investments are taken out of the picture. Choosing the dollar-cost average approach also means you don’t need to worry about dips in the marker – while also being certain of an improved return in the long run!