Twelve years after its creation, Bitcoin is still the most traded cryptocurrency on the market. The market for it experiences high volatility, with the prices of various digital coins rising or dropping in an instant. If you are interested in investing in cryptocurrencies, and specifically in Bitcoin, then you should think carefully about how to time the market in order to increase your chances of making a profit. In this article, we will review one of the most popular strategies for sustaining your Bitcoin holdings and explain how and when to apply it.
How to time the market?
Actually, timing the market for a single purchase of Bitcoin is not a sustainable strategy for investing. Rather than buying a certain quantity of Bitcoin and hoping that its price will shift in your favor, there are other, more efficient ways of controlling the risks of your investment. A proven method, which a lot of the experts and fund managers use, is the so-called Dollar Cost Averaging (DCA).
The DCA investment method & dealing with volatility
Dollar Cost Averaging is a conventional Bitcoin investment strategy, which consists of buying a set amount of the cryptocurrency over time. Instead of making a lump investment, purchasing Bitcoin during longer periods (under pre-set margins) can increase your holdings, while simultaneously reducing the risks of rapid losses. This way, you can practically go around the day-to-day market shifts and bet on the long-term potential of the cryptocurrency.
The DCA investment strategy’s core element is purchasing a fixed amount of BTC at regular intervals. If you want to invest 1000$ for example, a form of Dollar Cost Averaging will be purchasing 100$ worth of Bitcoin once every 30 days for the next 10 months. The intervals could vary, depending on your personal view of the market (ranging from anywhere between a week to a month).
How do experts use the DCA?
Expert investors prefer using DCA, as it takes the emotion out of investing and focuses solely on the long-term marginal gains of holding the cryptocurrency. Bitcoin, specifically, has a tendency to hit a new all-time high price each time it rises after a significant period of bear market. Some professional managers use this information to study price performance charts, which could indicate potential returns of long-term Bitcoin investments. Still, it is better to set up a specific date on which you buy Bitcoin for a pre-set amount of money regardless of the state of the market is the most efficient way to apply DCA.
Pros & Cons of Dollar Cost Averaging Bitcoin
Finding the right time to buy Bitcoin is dependent on your personal expertise and trading experience. While Dollar Cost Averaging can reduce the chance of potential losses, the strategy has certain disadvantages. The most obvious one is that it does not provide you with much space for short-term gains. DCA is specifically designed for investors looking at long-term exposure to Bitcoin. Moreover, to properly implement it and see the desired results, you will have to be prepared to hold your assets for long periods of time. While most professional traders are not particularly affected by the lack of liquidity, regular investors might have to withdraw some of their funds in certain situations. If in such a case the market is on the decline, this might result in significant losses.
On the other hand, Dollar Cost Averaging reduces the risk of buying tops, which can drop up to 50% in a matter of weeks. Removing emotional stress from investing could also prove quite beneficial to your overall well-being as many day traders suffer from considerable anxiety. While DCA depends on long-term dedication, it does not require a big up-front deposit, which leaves you with the opportunity to decide on the amount of money you’re willing to set aside for it.
There are many factors that you need to observe to find out the right time to buy Bitcoin. If you do not have much experience in trading or you are looking for long-term opportunities, then you should consider using the DCA investment strategy. This way, you could steadily build up your Bitcoin holdings. Before taking a leap and deciding to invest your money, you should always think about whether this is the right choice for you. Try to match your investment strategy with your financial goals in order to see the desired results.
Nothing on this website should be perceived as financial, investment or trading advice. We urge you to do your own research prior to investing and we highly recommend that you consult a certified financial advisor.
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