The best strategy for passive investing: Lesson #5

This new 11-part series is designed for beginners who want to invest in cryptocurrencies but need more information before taking the plunge. Our goal is to provide clear and concise explanations of the fundamental concepts in the world of cryptocurrencies.

Over the following weeks, we’ll publish a weekly lesson covering one topic regarding investing in cryptocurrencies. Each lesson will take less than 5 minutes to read. At the end of the course, you will better understand how to invest in cryptocurrencies, what to invest in, and when is the right time to do it.

Trading can be unpredictable, stressful, and time-consuming. Trading comes with a learning curve, and the average trader doesn’t outperform the market. If you are new to crypto and want a hands-off, bullet-proof strategy for investing, this lesson is for you. Today, we will introduce you to an investing strategy that can help you reduce some risks associated with entering a position without being an expert in technical analysis or timing the market.

💵 Introducing Dollar-Cost Averaging (DCA) 

Dollar-cost averaging is an investment strategy designed to reduce the impact of volatility on asset purchases. Buying equal fiat amounts of an asset at regular intervals can smooth out the average price and minimize the negative impact of a poorly timed entry on your investment.

🤔 Why should you consider using DCA? 

The primary advantage of dollar-cost averaging is its ability to reduce the risk of investing at the wrong time. Timing the market is notoriously difficult, even for seasoned traders. By dividing your investment into smaller chunks, you can improve your overall results and remove some biases from your decision-making process.

Now, DCA doesn’t eliminate risk, and it doesn’t guarantee a successful investment. However, it can help you create a smoother entry into the market, reducing the risk of poor timing. To fully benefit from DCA, you’ll also need to consider other factors, such as your exit strategy and the performance of the asset over time.

🌍 An example of DCA in action 

Let’s say you have 10,000 € to invest in Bitcoin. Instead of investing the entire amount at once, you could divide it into ten equal chunks of 1,000 €. Then, you’d buy 1,000 € worth of Bitcoin each month, regardless of the price. This would spread out your entry over 12 months, reducing the impact of any short-term price fluctuations.

If you anticipate a longer downtrend, you could adjust your DCA strategy to match your expectations. For example, you might divide your 10,000 € into 25 chunks of 400 €, investing 400 € each month over a little more than two years. This approach would allow you to build a long-term position while mitigating some risks associated with buying during a downtrend.

🔢 Test it yourself with a DCA Calculator

To explore the potential of dollar-cost averaging for your investments, check out dcabtc.com. This handy calculator lets you input your investment amount, time horizon, and investment intervals to see how different DCA strategies would have performed over time.

For example, if you’d invested just 100 € in Bitcoin every month for the last five years, you would have invested 6,100 €. As of April 2023, that investment would now be worth approximately 12,600 €, significantly outperforming the S&P 500 and other traditional investments.

🚀 Ready to get started with DCA? 

Dollar-cost averaging can be a powerful strategy for entering a position while minimizing the effects of market volatility. Whether you’re a seasoned investor or starting out, DCA offers a simple, effective way to invest without constantly monitoring the markets.

Coinmotion makes opening a Monthly Savings Account easy. Start your DCA journey today. Contact us if you need any help setting up your DCA strategy.

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