Cryptoassets and blockchain technology have the power to profoundly change the world. However, this technology is still in its early stages and the cryptoasset markets will likely continue to experience unpredictable short term price swings.

To build a long term crypto portfolio and avoid timing risk (buying at a less than ideal price) you can employ a technique known as “dollar cost averaging.” With Circle Invest’s Recurring Buys feature, you can set up this simple technique in minutes.   

Dollar Cost Averaging

Dollar cost averaging is a strategy where you invest consistent dollar amounts into the same investment or asset over a period time - $50 every week, for example. This is effective when investing into a volatile market because a fixed dollar amount buys more when the price is low and less when the price is high. More importantly, it removes the emotional component from investing and lets you build your portfolio gradually in an automatic fashion.  

Buying low gets you more, buying high gets you less

To better understand the advantages of dollar cost averaging, let’s take a look at how this strategy played out during bitcoin’s wild ride starting from 2017.

Dollar Cost Averaging in a Bull Market

Few people predicted bitcoin’s bull run in late 2017. Even without any special insight into the market, a simple dollar cost averaging strategy at the start of the year would have resulted in a 594% return. $50 per week starting January 1st, 2017 would have turned $2,650 into $18,397 by the end of the year.  

While a lump sum investment at the beginning of the year (or at any time before that) would have been more profitable, dollar cost averaging is an effective way to benefit from bull runs without having to make a large investment all at once.

Dollar cost averaging in a bull market

Dollar Cost Averaging in a Bear Market

What if you started investing in bitcoin at the worst possible time - the December 17th all-time high of $19,783.21. As of July 1st, a lump sum investment would be down 68%. If you started dollar cost averaging at the worst possible time with $50 per week, you would only be down 29% and in a much better position to benefit from future price appreciation.

Dollar cost averaging protects you from mistiming the market

Navigating Bull & Bear Markets

Now what if you stuck with dollar cost averaging $50 per week from the beginning of 2017 through July 1, 2018? During a period that saw bitcoin’s price both sharply rise and dramatically fall, your $3,950 investment would have appreciated to $9,391; a 138% return.

Navigate turbulent markets with dollar cost averaging

As demonstrated, dollar cost averaging allows you to take advantage of bull runs while shielding yourself from completely mistiming the market. More importantly, it allows you to gradually build a long term portfolio in an automatic, stress free way.

Set up Recurring Buys with Circle Invest today - then sit back and watch crypto grow and build a more connected, equitable world.