Coinbase thinks this method can help you avoid getting ‘REKT’ (a slang term for wrecked).
Cryptocurrencies experience more volatility than other traditional investments or normal currencies. The heavy price fluctuations have liquidated many investors. Users on Reddit post stories on how they lost money and savings while investing in crypto.
However, cryptocurrency exchange Coinbase offers a solution.
The method has been long used in traditional financial markets and it is called dollar cost averaging (DCA).
In a blog post published on June 7, Coinbase stated, “DCA can be an effective way to own crypto without the anxiety of committing a significant amount of capital at a fixed price at a particular moment in time.”
The DCA works by helping investors to weather market volatility by purchasing a stock or crypto on a regular schedule and at a set amount. Regardless of market swings, it could be a useful method to stay afloat.
For instance, an investor uses DCA to invest in bitcoin. He decided to purchase $100 worth of bitcoin every two weeks. If the market plunges, that $100 can buy more bitcoin and will likely have a higher gain if the market pushes back. If there’s a market turn around, the same amount will buy less bitcoin. If you average his bitcoin purchases, the price will be somewhere in the middle, reducing the losses.
“Cryptocurrencies like bitcoin have experienced price volatility in the past, with values swinging double-digit percentage points in a single day — and sometimes even in a single hour, Whenever the price starts to move, there’s no shortage of FOMO around whether it’s the right time to buy or not. As with any kind of investment, this can cause a lot of anxiety, uncertainty, or fear to participate at all.”
Coinbase trusts that DCA would guide investors in witnessing opportunities in market volatility of crypto through recurring buys.