What is DCA (Dollar Cost Averaging) And Why it is the Best Way to Buy Crypto Assets
Many investors in the crypto space look for the best ways and strategies to invest their money and make the most returns from various cryptocurrencies. Of all the investment strategies around, we will focus on a sure and trusted method you can use to safely invest your money and reduce the downside of volatility. The strategy we will discuss is Dollar Cost Averaging (DCA) and how you can benefit from using this strategy to boost your crypto portfolio.
What is Dollar Cost Averaging?
As a still volatile asset, cryptocurrencies are prone to sharp rises and declines over time which therefore makes DCA the best strategy to use when investing. Simply put, Dollar Cost Averaging is the splitting of your monetary investment periodically instead of a large buy-in. These periodic purchases are not affected by the price of the crypto asset and it helps investors stay free of the craze of trying to predict the market and enables them to maximize their potential returns and reduce the risk of losing their entire capital if there is a sharp drop in the crypto asset.
DCA ( which is also known as the Constant Dollar Plan), helps reduce the impact of crypto asset volatility and serves as a hedge against price fluctuations. It also allows the investor to buy the asset at cheaper prices since they will have capital to re-enter the market when the price drops. You can buy and learn more about crypto investment strategies when you visit Bitcoin Prime but first, we will discuss the pros and cons of DCA.
Pros of DCA
- It serves as a hedge against volatility as it protects you from much loss dues to dips in prices. If there are any market downturns, you are well protected because you do not have all your cash in the crypto asset and can continue to buy as the market recovers.
- It also helps you to focus on long-term gains and avoid the pain of short-term loss. With DCA, you are able to buy crypto assets for cheaper prices when there is a market downturn and when the market recovers, the assets are worth way more. It also helps investors hold and not sell immediately when there is a dip in price.
Cons of DCA
- Dollar Cost Averaging is not a way to determine a good crypto investment. You will also need to carry out extensive research on any crypto assets that you purchase because if you DCA into a bad investment, your returns will still be poor.
- It is not a silver bullet that solves all investment risks and is best suited to reduce the effects of volatility on a crypto asset. To get the best results as an investor, it is important that you know when to apply the right strategy.
- If the market rises over time, it may lead to you purchasing the asset at a higher price during each periodic interval. If you invest a high sum once, and the price keeps rising, you will get better value for your investment than using the DCA method over time.
Conclusion
There is no perfect investment strategy and different investors favor different strategies. If you want to buy crypto assets and are looking for a way to protect yourself from the volatility of the market, Dollar Cost Averaging is the best way for you to do this. It is also important that you learn a mix of various investment techniques and use them as appropriately required to get the best results on your investment.