If you’re on the fence about investing in Bitcoin, Ethereum, or another cryptocurrency, you’re not alone. In a study done by Gemini, a crypto exchange service, over 60% of American adults said they were curious about the digital currency, while only 14% of respondents actually owned any. It’s an understandable situation.
After all, cryptocurrency remains highly volatile, with prices quickly skyrocketing – and plummeting just as fast. In June this year, the value of Bitcoin dropped by 50% in only two months, while Dogecoin fell a dramatic 73% in half the time. While falling prices may be disconcerting to veteran investors, they can also present a suitable buying opportunity.
This begs the question, when is the right time to invest in cryptocurrency? Here’s what you need to know.
The DCA Strategy
For most people, the DCA (dollar-cost average) strategy provides an ideal entry to crypto investing. This approach entails buying small amounts on a regular basis as opposed to attempting to “time the market.” It’s a long-term strategy that may last a few months or several years depending on your goals, and works better against market volatility.
While DCA is increasingly popular among crypto buyers, stock market investors have been using it for decades, and your retirement plan is essentially based on the same principles. So, what makes it effective?
Benefits of DCA
As any experienced crypto investor will tell you, timing the market (which involves buying lump sums during peaks) is notoriously tricky and often risky. DCA is the more safe and stable approach, where you choose an affordable amount to buy on a regular basis regardless of the asset’s price at the time.
In doing so, you can iron-out the cost of your purchases and minimize the overall impact of the frequent price drops that cryptocurrencies experience. When the value of your coin falls, you leverage the lower cost and continue buying to earn greater returns when prices return to normal.
When DCA Works
First, it’s important to know which cryptocurrencies are worth your money. The top 10 cryptocurrencies to invest in can be found in the linked guide. No matter which one you choose, there are certain situations when the DCA strategy is ideal.
The most obvious is when you know the asset will increase relative to its current value. However, even if it doesn’t in the short term, you’ll benefit from having a long-term investment that will grow in value later. By averaging out the value of your purchases, you also win a little from price movements in both directions.
Another great advantage of DCA is that using the strategy ensures you avoid emotional trading. It’s a rule-based method with set parameters, which means you can stay clear of the common mistake of buying and selling based on excitement, fear, or other emotional factors that almost always prove to be detrimental.
In short, the right time to buy cryptocurrency is generally on a scheduled basis in set amounts. It’s up to you to decide how much you’re willing to invest and how often.