Is There Such A Thing As A ‘Perfect Time’ In Order To Buy Cryptocurrency?
TL;DR – Much like any kind of major market out there, there isn’t really a divine way to truly know when the right kind of time is to buy a kind of currency – but through the application of dollar cost averaging, and keeping a watchful eye on the markets mean that you can effectively make volatility within the market work in your favor.
It’s important that anyone reading this kind of article is that any advice given here is an introductory article on some of the best times that users should invest in particular cryptocurrencies, and should be taken as more of an educational tool as opposed to investment strategy. Investors should always strive to make their own assessments on the markets in order to get the most astute observations regarding your own investment strategy. If you are ever in doubt of the kind of investment strategies that you should take – always consult an accredited financial advisor.
Cryptocurrencies have been subject to a significant degree of fluctuation when it comes to price. When we look at Bitcoin and Ethereum, we see this price volatility written large over the past few years, with values fluctuating in double digit percentages in single days in radical cases. With late 2018 to present, we are seeing more stability from these currencies, but there is still some radical swings that can happen.
Whenever it moves into the green, however, there is certainly no shortage of that pervasive Fear of Missing Out (FOMO) from those enthusiastic investors out there, and many of them will be at the starting post, eagerly wondering whether it is, in fact, the right time to buy or whether they should hold off.
For many, as with any kind of investor out there, this can create a general feeling of fear, anxiety, uncertainty, or fear to participate in some instances.
This Is Where Dollar Cost Averaging [DCA] Comes Into Play
When we refer to Dollar Cost Averaging, this is effectively an investment solution which strives to reduce the kind of impact of volatility within the market by investing a set amount of money on a regularly scheduled way. This scheduling of investment can operate like so: you decide to invest roughly $100 worth of Bitcoin every month or so.
This is a solution that’s not exactly unique to the world of cryptocurrencies – this kind of averaging is conducted within Bond investment, conventional investment, where it investors have used it for decades in order to shield themselves from volatility within the stock market.
When it comes to bearish trends in the market, for example, that same amount of money can go a lot further to buy more Bitcoin, building up a more extensive porfolio for you when the market starts to go more bullish. During these upswings as well, while that same amount of money doesn’t purchase as much, it does help to limit the pain of loss if the market goes back to bearish trends.
This system of Dollar Cost Averaging can prove to be a highly effective means of investing and owning cryptocurrency without all of the potential risk and anxiety of committing a large chunk of money at a fixed price during a time when the market could cut into that amount you spent.
This does not even mention the kind of additional benefit that this system has in allowing investors to adjust this amount up or down as your portfolio and the market evolve.
Regardless, if you are one of the investors considering Dollar Cost Averaging, you should maybe first consider whether this is the right kind of approach for you and your specific circumstances in terms of investments. Once again, in these instances, it’s always wise to consult an accredited investment advisor just to double check.
Recurring Purchases On Coin Exchanges
Within more professionalised cryptocurrency exchanges, there is an easier way to take advantage of Dollar Cost Averaging through a mechanic of automatic recurring purchasing. This is the case with coin exchanges such as Coinbase, they are set up to allow buyers to take advantage of this solution.
All users need to do in these kinds of solutions is to choose the kind of digital asset they want to buy, specify the exact amount you’d want to obtain, then you select over what kind of time frame you’d like this purchase to take place – such as on a daily, weekly or monthly schedule. Through this system, the exchange will automatically repeat this purchase order until you choose to amend or cancel it.
A Prominent Example – LiteCoin – October 2018 To May 2019
Over the course of these seven months, Litecoin has not been exempt from market volatility, having seen its own price move from $22.95 on the low end, to over $114.86 on the high side per coin.
Hypothetically, if you decided to set up recurring purchases of 200 USD worth of Litecoin every month starting during the middle of October 2019.
As soon as you got to May 15th 2019, you would have effectively bought over $1,600 worth of this asset. And if you’d go on to sell off all of you Litecoin, you would net more than $3,208, which is an exceptional profit of $1,608.02.
In contrast, you could have decided to buy this same amount of Litecoin over the course of a single day. In this example – October 15th, 2018 – before selling it off on the same day – May 15th, 2019 – you would have only made $2,721.17 – which is $486.85 less in profit.
Getting the timing down for investment is next to impossible if you’re approaching it from a completely newcomers perspective, and crypto markets can be some of the most volatile on top of that. With Dollar Cost Averaging, investors can effectively create an opportunity out of all of this volatility. With coin exchanges that allow for this kind of averaging strategy, you can really turn a profit.
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