I remember when I first heard about Bitcoin.
And I have to admit––I was pretty skeptical at first, but the more I thought about it, the more sense it made.
But even when you develop enough conviction, investing in Bitcoin can be a pretty risky proposition.
I mean, Bitcoin’s price is incredibly volatile and has been known to go up and down by thousands of dollars in a matter of days, so how should one go about investing in it?
Should you invest all at once? Or should you dollar cost average into your position?
I believe that dollar cost averaging is the best way to get exposure to Bitcoin.
By investing a fixed amount of money into Bitcoin on a regular basis, you smooth out the price fluctuations and minimize your risk.
What is Dollar Cost Averaging (DCA)?
Dollar cost averaging, also known as DCA, is not a new strategy, and it certainly isn’t exclusive to Bitcoin.
This strategy has been around for decades, and experienced investors have used it to mitigate risk when investing in a variety of asset classes.
DCA is essentially an investment strategy in which you invest a fixed amount of money into an asset regularly, regardless of the current price.
By investing at regular intervals, you reduce your risk of buying an asset at its peak price and losing money.
For example, let’s say you want to invest $100 into Bitcoin every week.
If the price of Bitcoin is $10,000 when you make your first investment, you will purchase 0.01 Bitcoin.
But, if the price of Bitcoin falls to $8,000 by the time you make your second investment, you will purchase 0.0125 Bitcoin.
Over time, as you continue to invest the same amount of money into Bitcoin at regular intervals, you will end up buying more Bitcoin when the price is low and less when the price is high.
This strategy ensures that you average out your purchase price and minimize your risk of loss.
Why Dollar Cost Averaging is the Best Strategy for Investing in Bitcoin
There are two main reasons why dollar cost averaging is such a great strategy for investing in Bitcoin:
- Minimizes your risk – Dollar cost averaging minimizes your risk by allowing you to spread your investments out over time. This means that if the price of Bitcoin plummets tomorrow, you won’t lose all your money.
- Takes advantage of market fluctuations – Dollar cost averaging also takes advantage of market fluctuations by allowing you to buy more shares when prices are low. This means that over time, you’ll pay less per share on average than if you had invested all your money at once.
The Downside of Dollar Cost Averaging
Of course, there are also some downsides to using this strategy.
For example, it can take a long time to build up a position if you’re investing a small amount of money each week.
And, if the price of Bitcoin skyrockets tomorrow and you had been dollar cost averaging into your position, you would miss out on some upside potential.
But, in my opinion, the upsides far outweigh the downsides. Dollar cost averaging is a tried and tested investment strategy that has been used by investors for decades.
What’s Next?
DCA is a great strategy for investing in bitcoin because it minimizes your risk and takes advantage of market fluctuations.
If you’re thinking about investing in bitcoin, don’t push all of your money at once, be sure to use this strategy, as it will reduce stress, and increase your chances of success.