Bitcoin (CRYPTO: BTC) is down 1.7% over the past 24 hours, currently trading for US $43,564 (AU$59,872).
If crypto investors believe this represents a low point, should they invest a large sum of money into Bitcoin today?
Or is it better to ignore the price swings and invest a fixed amount into the token on a consistent basis?
The latter strategy is called dollar cost averaging.
Traditionally it's been used by share investors looking to smooth out their returns without trying to time the market. But is it suitable for cryptos?
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Is dollar cost averaging the way to invest in Bitcoin?
It was only on 10 November that Bitcoin hit all-time highs of US$68,790. A good time to sell, perhaps. But certainly not the time to go all-in.
On the flip side, over the past 12 months Bitcoin dripped as low as US$28,894 on 20 July.
With perfect hindsight, that would have been a great time to buy.
But in the crypto world, as in share markets, we're not gifted with hindsight months in advance.
Which brings us back to dollar cost averaging
Adam Traidman, is the CEO and crypto company BRD. And, as CNBC reported, Traidman uses dollar cost averaging for his own Bitcoin investments. He invests a fixed amount into the token at set times, ignoring the daily price swings.
According to Traidman:
Casual investors have a tendency to buy into the hype cycle and sell when the losses become a reality. It's crazy, illogical thinking, but it happens all the time. Why would people buy high and sell low? Well, they don't want to, but they sell out of fear.
As for when the Bitcoin price does take a tumble?
"I'm not letting [the price drop of Bitcoin] bother me, because I'm confident that the price performance charts have shown that it's going to return in the long term," Traidman said.
He added that, "Dollar cost averaging ends up making sense in the long term. If you contribute a little bit every time, in the long term you end up with a pretty darn good return if you can weather all the ups and downs."
Gemini on dollar cost averaging for cryptos
Global crypto trading platform Gemini also sounds off on the potential benefits of dollar cost averaging.
The company notes that, "Cryptocurrencies can be quite volatile, oftentimes even more so than stocks."
On its website Gemini notes that while investors may miss out on some potentially big gains, dollar cost averaging is likely to lower the risks:
You can generate a potentially greater profit from buying during dips and selling at the top. However, there's broad consensus that DCA [dollar cost averaging] is a safer overall method of investing than lump sum buying and selling. It's lower risk and lower reward, but still offers the chance of benefiting from market swings.
And when we're talking about an asset like Bitcoin, there are plenty of market swings to potentially benefit from.
