Cost averaging is a strategy in which an investor puts a fixed amount into a given investment such as Bitcoin on a regular basis e.g weekly or monthly. The investment generally takes place each and every month regardless of what is occurring in the financial markets. As a result, when the price of Bitcoin rises, the investor will be able to purchase fewer Bitcoin. When the price of Bitcoin declines, the investor will be able to purchase more Bitcoin. Crypto can be highly volatile so investing in this way spreads the risk over a longer term. If the investor believes the investment has long term potential but feels it is too risky to make a large lump sum investment then cost averaging can be seen to be a safer way to invest.
Why does Cost Averaging matter?
Investors around the world use dollar cost averaging because it offers the following benefits:
It's an attractive option for investors who want to contribute to their investment portfolios on a regular basis. Like savings accounts instead of a lump sum a fixed proportion can be invested each week as a proportion of income or long term investment goal.
It eliminates the issue of market timing. As a result, an investor's returns will be determined more by the overall trend in a given stock as opposed to the investor's specific entry price. In addition, it helps investors reduce their cost basis on securities that decline in value.
How to invest in Crypto Currency?
Crypto currency such as Bitcoin, Etherum and Litecoin can be bought in many ways as they function like regular currency however most crypto is purchased on exchanges. There are two main types of exchanges those being fiat and non-fiat. A fiat exchange allows you to deposit cash from a bank account and use that to buy crypto where a trading pair exists. Most exchanges have a trading pair between USD/BTC and EUR/BTC meaning you can deposit cash and trade directly for Bitcoin. You can also sell Bitcoin and withdraw it to a bank account.
We recommend the following exchanges for purchasing with fiat.
The second type of crypto exchanges are non-fiat meaning they only deal in crypto currency and have no function to deposit or withdraw cash to a bank account. These exchanges usually use Bitcoin as their main trading currency for creating trading pairs with other crypto currencies. These types of exchanges only deal with virtual assets so generally have less regulation meaning they can be more competitive however they will often offer riskier crypto assets.