Systematic Investment Plans (SIPs) have become an essential part of investing in traditional markets like stocks and mutual funds. They provide investors with an easy strategy to take advantage of market volatility while building their portfolios in the long run. But did you know you can use this same strategy for your crypto investments? So how to take profits in crypto and reinvest them?
What is SIP Investment?
SIP – or Systematic Investment Plan – is a method of investing in a variety of assets. In a SIP, a fixed amount of money is invested at regular intervals (e.g. monthly, quarterly.) rather than a lump sum. The main advantage of a SIP is that it helps to average out the cost of the investment over time and minimize the impact of market volatility.
For example, if you invest a fixed amount in a mutual fund through a SIP every month, you will end up buying more units when the market is down and fewer units when the market is up. This can help to reduce the average cost of your investment and increase the potential for returns over the long term.
SIPs are generally considered to be a convenient and disciplined way of investing and are popular among long-term investors who build their wealth over time.
What is SIP in Crypto?
As seen above, this feature has had a massive impact on the stock market, with millions of users using it. Naturally, crypto investors may also wonder if their investments can be managed through SIPs.
The good news is, you can! Crypto SIPs offered by various platforms allow you to automate investments into a particular token. The payment can be made regularly, on a day of your choosing. This allows you to take advantage of short-term price movements for long-term gains.
Read more: Crypto Vs Stocks
How Does SIP in Crypto Work?
Assume there is a token called ABC. This is priced at $100 per token.
Now, you start a SIP for $100 per month. This allows you to purchase 1 ABC token in the first month. Now, the price of the token rises to $110 in the next month. With your SIP, you can only purchase 0.9 ABC. Finally, the price falls to $90 in month three, allowing you to buy 1.1 ABC.
This is a technique called Dollar Cost Averaging. While you may have spent more in one month and less in another, the average cost stays steady and helps you avoid volatility. This also removes speculation around buying crypto, which can be daunting to new investors.
Some platforms even offer “coin sets” you can invest in, simulating a crypto mutual fund. This system increases diversification and reduces overall risk, making it a highly attractive strategy.
Read more: Crypto Trading Strategies
What are the Benefits of SIP in Crypto?
A crypto investment plan makes managing your portfolio much more convenient. You do not have to track the market daily or try and predict the best time to buy a token. Instead, your exchange will automatically take care of such inconveniences.
Dollar Cost Averaging
This principle is the main advantage of using SIPs over lump sum investments. Dollar Cost Averaging (DCA) reduces your exposure to volatility and allows you to enter the market at multiple price points. Your risk of sudden market movements is lowered considerably.
Many long-term investors say staying invested in the market is the most important factor in high returns. Crypto SIPs allow you to benefit over time, as you can reinvest your earnings and grow your wealth.
SIP Investment Strategy in Crypto
Increase Investments Over Time
Increasing the amount you invest in SIPs is highly beneficial in the long run. Ideally, your savings should be a percentage of your income, which allows them to scale along with your paycheck.
Do Not Withdraw Early
Sometimes, you may need to withdraw your investments to cover other expenses. However, this should be a last-case scenario as time in the market is essential to earning through SIP. If you must, try to withdraw when prices are high so you do not lose out on returns.
Track Your Portfolio Regularly
While you do not have to track the market on a daily basis, it is crucial that you manage and analyse your portfolio every once in a while. This helps you identify whether the portfolio is meeting your benchmarks, or if you need to switch your crypto investment strategy.
Crypto SIPs are a highly beneficial strategy to grow your portfolio in the long run. They can be used by anyone, from seasoned investors to newcomers to the crypto market. Its convenience and compounding effect allow you to earn with relative ease. But be sure to let your investments grow instead of withdrawing your funds frequently to make the most of it.
You can learn more about crypto on ZebPay blogs. Begin your crypto trading journey today with ZebPay Singapore.
FAQs on Crypto SIP
Is Crypto SIP Better Than Crypto Trading?
Both SIPs and crypto trading have their own benefits. Trading allows you to take advantage of large swings in price to make high returns in a short period. But this is much riskier than SIPs, which reduce volatility but offer less short-term returns.
Is Doing SIP In Crypto Good?
Crypto SIPs have several advantages that make them one of the best ways to invest in the market. You can easily reinvest your funds and conveniently purchase more tokens regularly without having to track the market on a daily or hourly basis.