Right off the bat - Just like with other financial markets, there’s no crystal ball that can predict the “best time” to buy bitcoin and other cryptocurrencies. However, you can use the dollar-cost averaging model to make market volatility work in your favour. You should also keep in mind that our discussion here is introductory and strictly for educational purposes. CoinFalcon doesn’t provide investment advice, and this article shouldn’t be viewed as such. Before making any investment decisions, always make your own independent assessment of whether any particular asset or investment strategy is in line with your risk tolerance and financial capacity. When in doubt, consult your financial advisor.
Before we dive in, let's talk about some assumptions. The prevailing assumption here is that you, the reader, are looking to purchase cryptocurrency and you understand the inherent risks. The market is still emerging and the technology is relatively new so anything could happen (very good or very bad). If you have decided to invest in cryptocurrencies and are looking for an entry point, then you need to be aware of what's going on with bitcoin. Not only is it the largest crypto asset right now, but we have also seen high levels of correlation in the market, especially among top cryptocurrencies.
Bitcoin has experienced price volatility in the past with values swinging double-digit percentage points in a single day, but it would seem the bulls are back in town. The second quarter of 2019 has seen Bitcoin retest several price highs that were established back in 2017. In addition, bitcoin and wider cryptocurrency adoption are continuing to grow globally, and there are now dozens of establishments, both online and offline across the globe that allow you to use bitcoin to make purchases.
Whenever bitcoin’s price starts to move, there’s no shortage of FOMO (Fear of Missing Out) around whether it’s the right time to buy or not. This can cause a lot of anxiety, uncertainty, or fear to even participate at all.
Enter the Dollar-Cost Averaging Model
This investment technique aims to reduce the impact of market volatility by investing a set amount on a regular schedule. DCA is not unique to the crypto market nor is it limited to the US Dollar alone. Investors have been using it for decades to weather volatility in the stock market. So how does it work? Let’s say you purchase €200 worth of bitcoin every two weeks — when the market is down, your €200 will buy more bitcoin, which increases the potential for a higher gain when the market goes up. When the market is up, that €200 will buy less bitcoin but also reduces the risk of loss should the market turn the other way.
The Dollar-Cost Averaging model, or in this case, Crypto-Cost Averaging, can be an effective way to own cryptocurrencies, but like with other investments, think first about whether it is right for you and your investment circumstances. If you’re unsure, please make sure to consult a licensed investment advisor.
Why will this work for crypto assets?
Cryptocurrency is still an emerging technology. As such, the crypto market is quite volatile and prices remain unpredictable. If you’re a beginner investor or you simply share very optimistic long-term views (hodler) of cryptocurrencies like bitcoin, ethereum, and ripple, then you know there is no sense in trying to time the short-term swings of the market. If you’re just starting out, the main objective should be to accumulate as many crypto assets as you can with the amount you are comfortable putting in. In that sense, dollar-cost averaging is the best way to do this.
Another advantage of dollar-cost averaging in cryptocurrency is that it takes out the emotional component of your decision-making. You will continue on a preset course of buying a certain euro amount of your preferred investment regardless of how wildly the price swings. By investing mechanically, you will not bail out of your investment when the price plummets in a wild swing, but rather see it as an opportunity to acquire more crypto assets at a lower cost.
Are there any drawbacks to dollar-cost averaging?
There are always downsides to any investment technique and dollar-cost averaging is no exception. For one, you may miss out on some good buying opportunities since you're not exactly timing the market and are simply buying cryptocurrency at set intervals. Nevertheless, the upsides to dollar-cost averaging outweigh the downsides, especially if you are new to the cryptocurrency scene and don’t know much about reading charts or don’t have an in-depth understanding of the technology
CoinFalcon makes it easy to get started with Crypto
At the end of the day, the opportunity cryptocurrencies can bring to the world is immense and it is good to keep in mind that we are still very much in the early stages of this revolutionary financial technology. As such, it would most likely be a higher risk not to have at least a small amount of crypto in your portfolio rather than not having any.
That's why CoinFalcon has made it easy for investors to own crypto assets. As an investor, you can buy crypto with your credit card and take advantage of DCA for your cryptocurrency investments. This way, you can simply log in to your CoinFalcon account at set times every week or month and buy bitcoin with your credit card or debit card.
The Bottom Line
Dollar-cost averaging will not necessarily make you a better investor overnight, but it can help you optimize your cryptocurrency purchases to get the best value for your money. And at CoinFalcon, it’s easy to get started by purchasing crypto with your credit card. Get started today!