Over the past few years, the cryptocurrency market has grown exponentially, drawing many people to invest in these digital assets. However, given the volatility of cryptocurrencies, losses are also part of crypto investing. It doesn't look good if you're an investor with lower risk tolerance like most people. But there's an old-fashioned investment strategy that can take your mind off the cryptocurrency price ups and downs.

What Is Dollar-Cost Averaging?

Dollar-cost averaging (DCA) means investing your money in equal portions, at regular intervals, regardless of the ups and downs in the market. You should invest $100 in cryptocurrency every month for a year, instead of $1,200 at once.

This investment strategy can help you manage risk by making regular investments with the same amount of money each time. You will buy more of an investment when its price is low and less of an investment when its price is high.

This is why DCA has become a popular way to buy Bitcoin and altcoins.

Benefits of Dollar-Cost Averaging

Many crypto experts agree that dollar-cost averaging is a safer method of crypto investing than lump sum buying and selling. The lower risk often means a low reward, but the DCA strategy offers the chance of benefiting from market swings.

First, you can choose an amount that’s affordable for you. You can invest $500, $100, or even $55 per month.

Second, this strategy reduces the overall impact of volatility on the cryptocurrency's price. DCA investors can continue to buy as scheduled if prices do fall, potentially earning returns as prices recover.

Third, DCA hedges your investments by “averaging” out the cost of purchases over time.

And fourthly, you don’t need to spend hours monitoring cryptocurrency price charts. It’s also a way to avoid trying to “time the market,” which studies have shown is very unlikely to be a winning strategy for crypto investors.

Dollar-cost averaging allows your investments to grow steadily over the long term, compared to lump-sum investing and a return on investment can be from 150% to 300%.

Disadvantages of Dollar-Cost Averaging

It is important to note that dollar-cost averaging works out favorably only if the asset rises in value over the period of time in question. this is why experts recommend starting with bitcoin.

Less risk means less reward. In other words, dollar-cost averaging is not a strategy to maximize an investment return in a short time.

You may also have to pay more fees over the long term using a dollar-cost averaging strategy. Crypto exchanges charge fees when buying, selling, or trading crypto. But fees can differ and you can find a crypto exchange that offers affordable fees.

Anyway, dollar-cost averaging is the most realistic and accessible way to ensure that crypto investors are getting into the market with a reduced level of risk.

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