FINTECH | CRYPTOCURRENCY
Given the seven months of losses for BTC and altcoins, you might think we’re crazy, but we are using dollar-cost-averaging (DCA) to buy BTC monthly
“Dollar-cost-averaging (DCA) describes an investment strategy in which an investor buys a fixed dollar amount of a certain asset on a regular basis, regardless of that asset’s price in dollars. The strategy is based on the belief that over time, prices will generally pick up the pace and eventually trend upward during a bull run.” — Coin Telegraph.
Many investors stop investing or dramatically cut the amount they invest during a bear market. In my opinion, particularly with the crypto market, that’s the opposite of what you should be doing.
Although it might not make sense to up your investments, it definitely doesn’t make sense to stop investing when the prices could be 75 to 80% lower than during the bull run when you bought a bunch of crypto.
Likewise, unless you sell while the market is down, you haven’t lost anything. Realizing that the crypto market is volatile and cyclic, you should hold what you have at the bare minimum, unless you want to sell some to offset gains for tax purposes. I’d rather pay the tax.
This is what you should do, IMO. Remember, I am not a financial advisor, and you should do your own research (DYOR) before investing.
Pick a figure that makes you comfortable — even if that $20 a pay period. Any amount that won’t hurt you financially and make a monthly direct deposit to your exchange to buy BTC.
I mean, who doesn’t like a sale? Think about it. How much more BTC can you buy at $18 or $19,000 compared to $50 to $60,000? I’m no mathematician, but I would say around three times as much.
What’s more, bear markets are almost always far shorter than bull markets, so you should start immediately to take advantage of these fantastic prices.
However, even savvy investors can make mistakes in any market, as Tom Handy points out in his article, 3 Reasons You Make Mistakes When Bitcoin Prices Go Down.
What Is BTC?
Satoshi Nakamoto, a pseudonym for a person or group who invented Bitcoin, came up with the idea of a digital currency independent of governments and banks.
He or they outlined the ideas behind the system in their initial White Paper, which was published in October 2008. Satoshi envisioned a currency that could be shared worldwide, not linked to any particular country, and went public with it in 2009.
Because a finite number of BTC can be mined (21 million), some people see investing in them as a way to make money. This is because as time progresses and more coins are mined, the value of each one is expected to go up due to scarcity, what is known as the time-tested Law of Supply and Demand.
Many Altcoins Won’t Make It Through This Bear Market
There are 18,465 cryptocurrencies today with a total value of around $2 trillion. That number could be lower or higher depending on the “mood in the market,” which is now negative due to inflation, war, and other economic concerns.
See the “Fear and Greed Index” below.
Those other than BTC are known as altcoins.
“The term ’Altcoin’ refers to any type of cryptocurrency other than Bitcoin. Ethereum is the most popular altcoin, and people use the full name (Ethereum) when talking about the broader blockchain network but Ether (ETH) to discuss the currency itself.” — Time Magazine.
However, there are also many more risks to consider when investing in them. Many of these altcoins are worthless and might not make it through this bear market. Investing only a few dollars’ worth is best to minimize losses.
Likewise, if you can invest a small amount in a coin or token before it gets listed on the major exchanges, that is probably the best method to make money.
However, these are NOT “buy and hold” coins. IMHO, there are only a few coins you should “hold on to for dear life” (HODL), and most of those are in the top ten as ranked by Coin Market Cap. Try to sell after making a reasonable profit to maximize profits before the whales start selling.
“‘A value of 0 represents ‘extreme fear,’ while 100 represents ‘extreme greed,’ the site explains. The index takes into account a few factors when deriving a score, including Bitcoin volatility, market momentum and volume, social media reactions, coin market capitalization, and Google Trends data.” — Fortune.
What Are Blockchain & DeFi?
Blockchain and cryptocurrency are the leading technologies that enable decentralized finance (DeFi).
Cryptocurrencies rely on various systems and algorithms to verify transactions. That ensures coins will not be published and sold more than once to prevent fraud.
Since the blockchain is a public digital ledger, every single transaction can be verified by every computer on the network.
Proof of Work (PoW) relies on miners to solve complex math problems, verify transactions on the blockchain, and earn block rewards (BTC is a PoW coin).
No mining is involved in the Proof of Stake (PoS) method. The network is secured by validator nodes chosen based on the number of tokens they possess.
What If BTC Reaches 100,000 USD in the Next Five Years?
Unless you believe that the cryptocurrency market is dead, you should be buying now. I just can’t believe that is true — especially considering how much money has come back into the market since BTC hit 18,000. Even if it is, what other medium can you buy that will get you those types of returns.
Considering there will only be 21 million BTC mined, it will surely be more valuable during the next bull run. Don’t you think?
The current circulating supply is 19,071,900 coins. Soon there will be no more to mine.
If you buy $5,000 worth of BTC during the next five years and the BTC price goes up to $100,000, your coins will be worth approximately $25,000. That’s a 500% return on investment (ROI). Not too shabby, right?
BTC’s Simple Moving Average (SMA) 200-Week Chart from Telegraph
The BTC SMA could be one of the signs of a rebound in the crypto market according to Coin Telegraph’s article, 5 indicators traders can use to know when a crypto bear market is ending.
These indicators could be a relevant barometer to watch. Though, with DCA, it’s not necessary to watch the market unless you have an “exit strategy.” That strategy could be to buy a home, a new car, or another large purchase or business investment.
What’s more, keep in mind that there is no known method to accurately call the “bottom” of any market, but Cointelegraph tips could help.
Since most altcoins follow BTC’s lead, a bottom for BTC could signal that other coins and tokens have safely made it through the crypto “winter.”
“A technical development that has signaled the end of a bearish period multiple times in Bitcoin’s history is when the price falls below the 200-week simple moving average (SMA) and then climbs back above it.” — Coin Telegraph.
However, there are no guarantees that any of these indicators, or even all of these indicators aligning simultaneously, will mean an upturn in the market.
BTC Data Current as of 2 JUN ‘22
“The live Bitcoin price today is $19,027.58 USD with a 24-hour trading volume of $41,969,337,928 USD. We update our BTC to USD price in real-time. Bitcoin is down 7.05% in the last 24 hours. The current CoinMarketCap ranking is #1, with a live market cap of $362,874,899,529 USD. It has a circulating supply of 19,070,993 BTC coins and a max. supply of 21,000,000 BTC coins.” — Coin Market Cap.
BTC to USD Conversion Chart All-Time
Can BTC Solidify Your Retirement Savings with DCA?
Although there’s no guarantee, it very well could. If you take a conservative approach and DCA an affordable amount over the next three to five years, depending on when the bull market returns, you will likely have a good stash of BTC.
Dollar-cost averaging is an investment strategy in which an investor divides the total amount to be invested across purchases done periodically of a target asset to reduce the impact of volatility.
Even when you have a bonus or tax return, you should split the amount equally to buy BTC, unless you strongly believe the price is at or near the bottom. But, don’t kick yourself too hard if the price drops further.
Another method is to do as many investment consultants advise and pay yourself first. Set aside a specific amount that you can afford every month to buy BTC.
An investor who invests $3600 in $100 monthly installments could beat inflation, market volatility, and other factors by spreading the $3,600 investment over 36 months.
Therefore, they would buy fewer BTC when prices are high and more when prices are low. That will help pull down the average price per coin fraction and possibly bring a substantial gain. The DCA strategy has delivered similar results during the previous bull-bear cycles.
Take a look at BTC’s historical chart or price swings. Between DEC ’17 and DEC ’18, BTC went from $19,140.80 to $3,252.84, nearly an 82% loss.
The trading volume on 17 DEC ’17 was $13.3 billion; on 16 DEC ’18, it was $3.74 billion. That’s a difference of nearly $10 billion on a day with an exceptional bargain price for BTC.
In NOV ’21, BTC hit its ATH of $68,739.63. Imagine what your portfolio would have looked like if you had been buying even a small amount during the three to five years before.
Investing with DCA is an intelligent way to invest money long-term, as it will maximize your buying power when BTC prices fall sharply.
Since it is deflationary, its value will continue to rise over time as long as its demand increases. This is because the supply of BTC is limited.
Final Thoughts
There are no guarantees when investing, and investing in cryptocurrencies is more volatile than most stocks, metals, and commodities.
There are many factors to consider. Primarily, the project and number of transactions per second (TPS) processed. Most altcoins, other than “meme coins,” have a purpose, and the time it takes to verify the coin through PoW or PoS is a barometer.
Secondary considerations include the altcoins’ maximum supply. Look at XRP; although it has an excellent project and TPS compared to others, its maximum supply is 100 billion. Whereas Stellar (XLM) is half that, or 50 billion, which is still high, many have a maximum supply of less than 10 billion.
However, considering XRP and XLM’s mission as a low-cost international transfer vehicle, a high maximum supply could be necessary and efficient, so don’t discount any coins solely on that factor. The maximum supply could already be factored into the price.
Ensure you understand all the parameters of DeFi and the blockchain. However, if you believe in the long-term value of crypto as an asset, it might be a good idea to consider investing now, before the price increases.
If you have money available to invest right now and want to make sure you profit from it when the market recovers or enters another “bull run,” you should consider taking the time to research your options and implement a DCA strategy.
DISCLAIMER: This article is for entertainment and informational purposes only. It should not be considered financial or legal advice. Not all information will be accurate. I am not a financial adviser, and you should consider anything I write as informational and friendly banter to show you what is possible if you invest your money in these vehicles. However, there are no guarantees. Consult a financial professional before making any significant financial decisions.
Note: This post contains affiliate links. Read my disclosure statement for additional information.
Stephen Dalton is a retired US Army First Sergeant with a degree in journalism from the University of Maryland and a Certified US English Chicago Manual of Style Editor. Also, a Top Writer in Nutrition, Investing, Travel, Fiction, Transportation, VR, NFL, Design, Creativity, and Short Story.
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