Is it smart to use dollar cost averaging to buy Bitcoin?

Man sitting at a desk facing his computer screen and holding a coin representing discussion by the RBA Governor about cryptocurrency and digital tokens

Man sitting at a desk facing his computer screen and holding a coin representing discussion by the RBA Governor about cryptocurrency and digital tokens

Dollar-cost averaging (DCA) is a popular method of investing. It takes the ‘when should I invest?’ question out of the equation. It does so by using a consistent pattern of investing to achieve a smooth cost base over time.

For example, a simple dollar-cost averaging strategy would involve an investor consistently investing say, $500 a month, into an investment, regardless of its pricing. This ensures that you get an ‘average’ entry price over time, negating the need to worry about ‘buying at the top’.

Investors can use a DCA strategy on almost anything, including index funds and individual shares. And yes, even cryptocurrencies like Bitcoin (CRYPTO: BTC).

A DCA strategy is arguably well-suited to an asset like Bitcoin. Bitcoin is, of course, infamously volatile. In just the past year, it has traded as high as US$67,500 and as low as US$19,000.

Rather than dealing with those kinds of extremes, investors who use a DCA will instead bypass this volatility to a degree, and put their investment on ‘autopilot’.

But is a dollar-cost averaging strategy really a good idea for something like Bitcoin?

When to use a dollar-cost averaging strategy for Bitcoin

Well, at least one expert investor thinks so. According to reporting in The New York Times, Cory Klippenstein has some newfound crypto fame. He reportedly became a bit of a name in the crypto world when he called out the “scam” of cryptocurrency Terra (CRYPTO: LUNA). Luna sensationally crashed earlier this year.

Klippenstein runs a Bitcoin company called Swan Bitcoin. It is built on his ‘Bitcoin maximalist’ faith that one day the cryptocurrency “will transform the financial system even as fraud pervades the rest of the crypto ecosystem”.

Swan Bitcoin reportedly caters to “wealthy families, businesses and retail traders to set up Bitcoin investment plans, often through an automatic purchasing program”. This dollar-cost averaging strategy is one that Klippenstein uses himself.

According to the report, he “invests a portion of his own savings in Bitcoin every day” and “has continued to buy at the same rate throughout the downturn” of the past few months.

So that’s at least one advocate of a DCA strategy for Bitcoin. Something to consider for any reader who wants to jump aboard the crypto train, but finds the volatility that comes with it offputting.

The post Is it smart to use dollar cost averaging to buy Bitcoin? appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has positions in Bitcoin. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin. The Motley Fool Australia owns and has recommended Bitcoin. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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