I recommend to most people interested in investing in cryptocurrencies to use a dollar-cost averaging (DCA) strategy. DCA makes it easier to weather the volatility of cryptocurrency markets. It’s also a simple strategy that doesn’t require a lot of time or attention from the investor.
Here’s how it works:
- Budget an affordable amount of money from your monthly budget for each cryptocurrency you’re interested in.
- Choose a fixed time period for the investment, say, six months or two years.
- Spend that amount, each month, around the same time of the month, for the full time period.
That’s it! So, if you think you can afford $25/month to buy EvanCoin 😉 or Monero, set up a reminder for yourself in your calendar. Buy that much of the cryptocurrency you want to get.
There are a few main advantages to this strategy:
- Ups and downs in the price of the cryptocurrency matter less to you than if you’re day trading. When the price is down, you can buy more with your $25 or $100 or whatever. When the price is up, you can’t buy as much, but your investment is also doing well. Either way, you’re happy about the investment.
- You don’t have to watch the prices that closely.
- You don’t find yourself worrying about buying the next new fashionable coin. You are only buying if the investment fits into your budget and you’re committed to it for the long term.
- You gradually build up a nice cryptocurrency portfolio without breaking the bank. You’re not trying to make one big score; you’re diversifying with affordable investments across different currencies.
- Bounding your investment for a time period means you don’t have to stress about when to continue the investment. After the time period is up, you can make the call whether to sell or hodl. If the investment is doing well, you can “reenlist” for another 6, 12, 18 or 24 months.
There are downsides, of course.
- You’re not going to make a big score by buying at just the right time a currency that jumps 1000% over night. But that happens so rarely, it’s not worth trying to make that happen. More often, there’s a lot of stress and over-spending by people who are trying to make one big score.
- Exchanges for buying cryptocurrencies suuuuuuuck. It’s really miserable to do any kind of trading, what with bad software and Know Your Customer anti-features. Having to make one purchase per month for each currency can feel like a real chore. Finding a good exchange can help this a lot.
- Transaction fees can be high, and you’ll pay them multiple times. This can be pretty painful if the fees are a high percentage of your monthly investment amount.
Cryptocurrencies are risky investments based on new technology. Never invest more in any asset than you can safely afford to lose. Dollar-cost averaging can help avoid some of the risk.