Spoiler alert: similar to other markets, there’s no crystal ball that can predict the “perfect” time to buy — but dollar-cost averaging can make market volatility work in your favor.
Please keep in mind that our discussion here is introductory and merely educational. Coinbase doesn’t provide investment advice, and this article shouldn’t viewed as investment advice. Always make your own independent assessment of whether any particular investment or investment strategy is right for you, your risk tolerance, and financial means, before entering into a transaction. When in doubt, consult with a licensed financial advisor.
Cryptocurrencies like bitcoin have experienced price volatility in the past with values swinging double-digit percentage points in a single day — and sometimes even in a single hour. Whenever the price starts to move, there’s no shortage of FOMO around whether it’s the right time to buy or not. As with any kind of investment, this can cause a lot of anxiety, uncertainty, or fear to participate at all.
Enter dollar-cost averaging (DCA).
DCA is an investment technique that aims to reduce the impact of market volatility by investing a set amount on a regular schedule (for example, purchasing $100 of bitcoin every two weeks). And it’s not unique to crypto — traditional investors have been using DCA for decades to weather stock market volatility.
When the market is down, that $100 will purchase more bitcoin, increasing the potential for a greater gain if the market turns around. When the market is up, that $100 will purchase less bitcoin, reducing risk of loss if the market turns the other way.
DCA can be an effective way to own crypto without the anxiety of committing a significant amount of capital at a fixed price at a particular moment in time. Not to mention, doing this provides the added benefit of adjusting this amount up or down as you go. Either way, if you’re considering using DCA, think first about whether DCA is right for you and your own investment circumstances. Again, please consult a licensed investment advisor if you’re unsure.
Recurring buys on Coinbase
On Coinbase, it’s easy to take advantage of DCA with an automatic recurring buy. All you have to do is choose the asset you want to buy, specify an amount, and choose a daily, weekly, or monthly schedule. Coinbase will then automatically repeat that purchase until you change or cancel it.
Case study: Litecoin, October 2018 — May 2019
During these 7 months, litecoin experienced volatility in its price, fluctuating between $22.95 and $114.86 per coin.
Let’s say you decided to set up a recurring buy for $200 of litecoin every month starting on October 15, 2018.
By May 15, 2019, you would have bought $1,600 worth of litecoin. If you sold all your litecoin at this point, you would get $3,208.02, a profit of $1,608.02.
Alternatively, if you bought the same amount of litecoin ($1,600) on a single day, October 15, 2018, and sold all of it on May 15, 2019, you would get $2,721.17 — that’s $486.85 less profit.
Timing the market is impossible, and crypto markets can be volatile. With DCA, you can turn that market volatility into an opportunity. And at Coinbase, it’s easy to get started by setting up a recurring buy. Get started today.