Understanding DCA as it relates to Bitcoin. There are certainly some flashy, eye-catching methods of investing in bitcoin. Unfortunately, they seldom offer the rewards they promise.
You may have experienced disappointment after disappointment with these techniques. Now you’re looking for something that doesn’t overstate its potential but delivers consistent, reliable results.
What you’re looking for is dollar cost averaging or DCA. When you DCA bitcoin, you gain valuable benefits both financially and otherwise.
We’ll share seven impressive reasons investors say they found what they were looking for in DCA. Bitcoin Savings Account: 5 Important Things to Know
DCA or dollar cost averaging is an incremental approach to investing regardless of market conditions. In its most basic form, it means purchasing bitcoin at regular intervals, such as weekly, on an ongoing basis. You can easily automate the process, so you don’t have to remember to make your next purchase.
Now let’s look at DCA’s potential benefits.
Timing the market is tempting to most new investors. On the surface, it seems simple. You watch the market until prices dip significantly and buy. Next, wait until prices rise as high as they can and sell before prices start heading downward.
One of the many problems with trying to time the market is you have to be right when most other investors are wrong. That would be a challenge for even the most brilliant, well-educated investor.
You are also putting yourself in a position where you must be right not just once but twice. You have to correctly predict the bottom of the market as well as its top.
Conversely, you’re not worried about being “right” or “wrong” with DCA. You’re looking down the road.
So, how effective is the approach? Let’s look at what would have happened if you had purchased $20 of bitcoin weekly beginning on the first day of 2014 and continued until November 8, 2022.
According to a bitcoin DCA calculator, you would have converted a $9,220 investment into $160,877.02. That’s an increase of over 1,645%.
Decision fatigue is the mental state after a person is overwhelmed for an extended period with choices to make. You may have experienced this if you’ve ever had to plan a wedding or remodel a house. The decisions can seem fun initially but become increasingly burdensome as the process drags on.
That’s why you’ve heard the oft-repeated story of people in power, such as CEOs and even the President of the United States, limiting their daily wardrobe. In the mornings, they don’t face a multitude of choices for clothing. Those who have adopted this approach say that it saves them valuable mental energy.
Dollar cost averaging your bitcoin likewise saves your brain from the exertion of having to make daily buy and sell decisions. You only need to establish your investment amount and the frequency with which you’ll invest. That’s it. You’re done.
You may be a person who believes it’s not necessary to set up a budget. Perhaps, you never experience a financial shortfall at the end of the month. That’s great. But there are other reasons why a budget is still valuable.
A budget helps you set priorities. Without one, you might find other ways of spending your money. But if you use a budget, you will mentally set aside a certain amount to buy bitcoin.
This leaves you and your wallet free. You can concentrate on pastimes, hobbies, and other activities.
Any asset can be the subject of the great hype machine, but bitcoin is a favorite target. Try browsing bitcoin newsletters, blogs, and podcasts without being told you’re in danger of missing out on the next big thing.
No one’s surprised when a small child is distracted by shiny things, but we’re disappointed when supposedly mature people are. You can avoid disappointing yourself by using DCA.
You would no longer have to scrutinize each new offering for fear of missing out. Jumping from one investment strategy to another is a sure way of losing momentum. As the old saying goes, the person who chases two rabbits seldom catches either.
Market volatility frightens newcomers and even some longtime investors. Why? There’s a dread of losing money if the market tanks shortly after you enter it.
That fear is understandable for a new investor looking for somewhere to put a small inheritance. You don’t want to wake up and learn that you lost 50% of your investment overnight.
On the other hand, using DCA to invest a reasonable percentage of income regularly reduces risk. How?
You know that you’re not reliant upon the results of a one-time investment. You’re in the market for the long term.
Therefore, if your assets take a hit, you’re sure of two things: 1. history tells you the setback is only temporary, and the market will rebound, and 2. now that prices are lower, you’re going to purchase more bitcoin at a bargain as part of your regular investment routine.
One of the reasons bitcoin trading can be obsessive is its availability. There is no off time. The market is constantly changing, which is an enticement to someone whose brain is geared toward finding excitement and novelty.
Seeing what a traitor thinks are signs of a bull run can release dopamine, a brain drug of anticipation and reward. The sensation can train the brain to chase that high over and over. Progressively, the anticipation and the reward have to become greater. That usually means risking more money.
Like any addiction, bitcoin obsession can lead to financial ruin. More importantly, it can endanger families and other relationships. Even your physical health is involved.
DCA can reduce the likelihood of your heading down the path of addiction because it doesn’t matter what the market is doing at three in the morning, during your best friend’s wedding, or during your grandfather’s funeral service.
Your Investments are on a set schedule, leaving you free to focus on the more important moments of life.
Even the most hardcore bitcoin investor will likely have a well-rounded portfolio that includes other assets. However, spending all day every day concentrating on buying bitcoin leaves little room in your schedule for researching other investment opportunities.
DCA gives you that time back. Now you can delve into other avenues that require learning about promising assets with which you need to become more familiar.
Are you interested in getting off the never-stopping treadmill of timing the market? If so, you can DCA bitcoin to find the same comfort and peace of mind it’s given other investors.
Contact us today for more information about how you can get started with dollar cost averaging.
First Financial® | Corporate Headquarters | Mailing Address: First Financial 2305 Historic Decatur Road, Suite 100, San Diego, California 92106
Client Service Center: Main: 1-800-315-7791 Fax: 1-800-215-0217
First Financial® & First Financial Online® are Federally Registered Trademarks
©1996-2023 First Financial®, All Rights Reserved. All other products and company names are trademarks of their respective companies. First Financial® does not provide any investment, financial, tax, legal or other professional advice. We recommend that you consult with financial and tax advisors to understand the risks and consequences of buying, selling and holding Bitcoin.*Not all lenders can provide up to $5,000. Must be 18 or over, outside of New York, South Dakota and Hawaii to sign up for a Bitcoin Savings Account.