As a Cryptocurrency investor, you are going to come around different strategies for gaining in the market. Do you know how to dollar cost average bitcoin, it is one of the best strategies that are quite popular among many investors. You probably have come around the term too as a most level –headed way of speculating bitcoin price, the important question for you is can you too apply the strategy.
How DCA Works
If you ask someone who knows how to dollar cost average bitcoin, you will hear them say it “is not the sexiest thing as it lacks the thrill, but it is the most powerful thing when you apply it”.
It means the DCA makes you stay away from the thrills of riding ups and downs of the market. Instead, it lets you focus on long-term buying of bitcoin at regular intervals and in the end to become a winner due to averaging out the losses.
You require a longer period for it to work. Here is how DCA works:
- It is the measured approach
- You will be investing a small amount at regular intervals.
- By buying bitcoin at a different amount, you start to smooth out the bumps in the long duration.
- The time is your friend in the strategy, with long durations you will come out at the top than your counter-parts.
DCA vs. Random Guessing Games
If the DCA does not work out better than the random guessing than what is the point of having it in the first place. Therefore, to clear the following confusion or misconception let you get little idea here is the following case layout for you:
Let us take two investors A and B to try to invest in the market from JAN1, 2018. Let us say A goes with a random buying approach and buys 5000$ worth of Bitcoin in one go. The price is $13, 800 at Jan1, 2018 for one bitcoin, and A got around 0.362 worth of BTC.
B instead chooses to go with DCA, for that made purchases of about $500 every 10 months will gain about 0.61 BTC in the market if it started from the same day that is JAN1, 2018.
The variance in BTC of both wallets is due to market fluctuations. B gains more BTC just because of buying in the market consistently at both higher and lower prices over time. It is important to notice both A and B have invested the same amount of money but gain very different amounts of BTC, B going to gain double the BTC than A.