DCA strategy or step-by-step buying is a surefire way to buy bitcoins
With your friends and acquaintances, bitcoin, especially when the market is bullish, buying bitcoin. These questions may be asked by your best friend, your grandmother, even taxi drivers, or anyone else. Questions such as when are the best time to buy bitcoin? Buy Bitcoin? Is the current price suitable for buying Bitcoin? What is the best way to buy bitcoin? Given this, choosing the right time and method to buy digital currencies and bitcoins is one of the current concerns. There are various methods and strategies for traders to do this. This article will introduce and review the DCA strategy, which is also known in the Iranian financial markets as step-by-step purchase letters and reducing the average purchase.
Do’s and Don’ts of Buying Bitcoin
All the questions in the previous section were about buying bitcoins, but the same is true for other investments. If you plan to buy something like Bitcoin, you need to know why and for what purpose you are doing it and when to buy it.
Before investing in any field, especially in an area like Bitcoin, you should be fully acquainted with it. Nowadays, many people who have invested in Bitcoin, instead of using it as a payment method, have gone into the hole and maintained it.
It would help to answer a few questions before entering and investing in Bitcoin. Questions like: What makes Bitcoin unique? Who controls Bitcoin and its value? How many bitcoins are there now, and what is the total number of bitcoins? What was the purpose of creating Bitcoin? How can bitcoin and other digital currencies be maintained? If you can not answer some of these questions, you should start further research and study and increase your knowledge about digital currencies.
Bitcoin as an investment method
The first thing you need to know about investing in Bitcoin and other digital currencies is precarious and volatile. In traditional financial markets, the stock market was considered dangerous, but the concept of risk changed with the advent of digital currencies. An asset that experienced about 2,000 percent growth in one year in 2017 and about 70 percent in the following year (2018) is highly risky. These values indicate a large number of fluctuations in this digital currency. Imagine for a second you were transposed into the karmic-driven world of Earl. In this case, what happens to your capital?
Before you decide to buy it, you need to ensure that you can manage the risk, and if you lose 90% of your investment, you can accept it and consider that part of your capital loss.
Value of Bitcoin ($ 1 million or zero?)
Our advice to you before buying and investing in Bitcoin is to assume that the value of Bitcoin may reach around $ 1 million in the next 10 to 20 years or lose its weight and status altogether. Now ask yourself if you want to stay out of the game, and in the future, your children will ask you why you did not buy Bitcoin when it was cheaper?
Also, ask yourself what you would do if the most negative situation happened and the price and value of bitcoins came close to zero, or the weight did not decrease too much, but your access to your bitcoins was lost, and you lost all your capital?
DCA strategy is the best way to buy bitcoin
You are not a predictor of exactly when to buy and when to sell bitcoins. In other words, we can not schedule the market correctly. That’s why a method called DCA has been created.
DCA (Dollar Cost Averaging) is an investment method in which you divide the total amount you want to invest evenly over a regular period. This interval can be once a week, once a month, seasonally, or whenever you want.
This method has different letters in different financial markets. For example, in the American financial markets called Constant dollar plan, the British financial markets reached Pound-cost averaging, and in other markets called Unit, cost averaging (Decreasing average) or Incremental trading (increasing trading). Or average cost effect is known. Also, people active in Iranian financial markets such as stock exchanges see this method as reducing the middle or, more precisely, step-by-step purchases.
Advantages and disadvantages of DCA strategy
The advantage of the DCA or step-by-step method is that you will be less worried about the purchase price compared to the usual ways. The DCA strategy is beneficial for long-term investments and volatile assets such as Bitcoin and will allow you to buy that asset at an average price over that period.
The good thing about Bitcoin versus other assets is that you can buy as much bitcoin as you want, and this is possible up to 0.00000001 bitcoins, and there is no minimum purchase limit.
One of the disadvantages of this strategy is that in bull markets not possible to maximize your profits. But according to the previous study, there have been different periods when the profit from the purchase with DCA strategy has been more than the profit from the investment as a whole.
Another disadvantage of the DCA or step-by-step strategy is that it is difficult to adhere to this strategy and buy a certain amount of an asset, such as Bitcoin, at a given time. You may sometimes decide to do it at another time or buy something other than the specified amount (more or less).
The fantastic result of DCA strategy (profit about ten times in 5 years)
If you have bought $ 1 a bitcoin a day for the past nine years, today, your assets are worth about $ 18 million. This was very easy given that bitcoin was worth around a few dollars in 2011 and 2012.
In the following, we will use a more realistic example to understand the content better:
Suppose you receive a monthly salary of $ 5,000, and since you heard about the potential of Bitcoin, you have decided to spend 5% of your monthly salary on buying Bitcoin. In the last three years, if you have paid $ 250 a month buying bitcoins since late 2016, you have returned about $ 18,300, or 203%.
If you’ve been lucky enough to do this in the last five years using the DCA (Step Shopping) strategy, you’ve made about $ 171,650, or 1,077% profit.
Even considering the price of bitcoin in the last two years and 2018, when bad things happened to the cost of bitcoin, you still made about $ 1,166, or 29.5% profit. But suppose that in December 2017, you spent all your capital together on buying bitcoins, in which case you would have lost about half of your money.
The DCA strategy is not specific to buying bitcoins. You can use this strategy in any other investment. This strategy also applies when selling, and you can also manage your investment risk through step-by-step sales.
Cryptopotato first introduced the DCA Calculator for investing in Bitcoin in 2016. There are now other tools like dcabtc.com for this.
Concluding remarks
As we have seen, the DCA or step-by-step strategy is one of the complete ways to make a long-term investment and the best way to buy bitcoin. Given the limited supply of bitcoins, it is believed that the value of bitcoins will increase in price and value over time and in the future.
Also, since no one can say precisely when is the right time to buy or sell bitcoins, the DCA strategy can be the best way to buy bitcoins.
