24 January 2022: The cryptocurrency market opened this week down another 9% in the past 24 hours. For many, the past two months have been absolutely brutal as the cryptocurrency market has delivered near-staggering losses.
Just in the past week alone, these are the returns for the following coins:
- Bitcoin: -20%
- Ethereum: -30%
- Cardano: -28%
- XRP: -25%
- Solana: -40%
- Polkadot: -40%
- Avalanche: -37%
No one likes to be bearish. However, with potentially bigger losses possibly looming on the horizon, is it better to sell into a loss and attempt to buy in lower or continue to hold your coins? The problem with selling into a loss firstly is obvious - you haven't lost anything until you have actually sold. Despite the outlook of the market, it is impossible to gauge the bottom of any selling event.
Additionally, as soon as you sell out and look to buy in at a lower price, emotions can play a detrimental role in making good decisions. Each rise you may find yourself questioning whether you should jump in so you don't miss out. These choices can cost you even more money in the long run.
So what is the better option? Dollar cost averaging.
The Art of Dollar Cost Averaging
It is often stated that the rich rarely ever sell out of assets, if ever. The art of the game is accumulation and that is successfully done through dollar cost averaging (DCAing).
DCAing, simply put, refers to lowering your average purchase price by adding to your holdings as the price continues to decrease. For example, if you bought 10 ETH at $4000, then by purchasing 5 more at current levels (~$2200), the average cost of each ETH you hold drops from $4000 to $3400 - this sets your break even MUCH lower than previously.
This is where real investment strategy deviates away from simply HODLing like many influencers will suggest. If you were to simply HODL those 10 ETH, you are literally trapped in a loss until it were to break above $4000 again. With DCAing, an appropriate strategy could see you break into profit way sooner than before and even make you even more money on the way back up.
Implementing the Best Strategy
How you choose to set up our dollar cost averaging strategy is entirely up to you, your risk assessment, and your own timeline. You could choose to make larger, routine purchases of your favorite assets as they decline. You could make purchases at specific price targets or even just set weekly recurring buys and forget about it.
Whatever you decide to do, having a strategy in place will save you a lot of headaches and help you relax in periods of immense decline such as now.
Dollar cost averaging is the absolute best investment strategy for those who believe in the longevity of A. the coins they are holding and B. the future utility of the cryptocurrency space itself.
Dollar cost averaging into a meme coin that could, quite literally, go to zero during an extended bear market is not the best bet. However, in major coins like Ethereum, dollar cost averaging is a great investment tool for anyone that isn't a highly experienced day trader. It isn't too late to establish your own strategy moving forward!
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