Introduction
Due to the very high volatility in prices, the Crypto market is one of if not the most risky market to invest in. Despite the volatility, there are methods or tactics that smart investors use to navigate towards profit. One of these methods is dollar cost averaging. DCA can be a very important tool for beginners in the financial markets. In this article, we’ll explore the best crypto currencies for DCA.
Brief overview of dollar cost averaging (DCA)
Dollar cost averaging is an investment strategy that basically involves investing a specific amount of money at regular intervals regardless of the price. This strategy reduces risks by helping investors to average out market flunctuations and avoid emotional decision making. It is also a powerful tool that helps investors to stay active during both the bull and bear markets.
Importance of choosing the right cryptocurrency for DCA
While DCA can be an helpful tool, it’s is important to understand that this strategy isn’t applicable to all crypto currencies at all times. Especially the ones with very low to no potentials. You don’t want to be dumping your hard earned money periodically in an investment that’ll keep making lows. You have to be able to identify which asset has the highest potentials or which one can give you the highest possible return on your investment. Only then can you DCA into such assets.
Bitcoin
Bitcoin is the most popular crypto currency, and the largest by market capitalization. A significant percentage of Bitcoin holders today are bullish. This is a very important factor as it signify a bullish future for Bitcoin. With several speculations about Bitcoin reaching a minimum of $100,000 by the end of this bull run, DCA into Bitcoin is likely to bring a significant profit.
However, there’s down side to it. If you have all your funds now, some people may advice that you put it all now. What if the price keeps going up and you’re DCAing into the market? That means you’ll be losing some potential profits on your next buy when the price would have been higher than your first buy. But the upside is also that on your next buy, the price might be lower than your previous buy which will help you to buy more for less.
Market stability and long-term potential
Bitcoin might seem unstable in the past few weeks, but if you zoom out, you’ll realize that bitcoin is yet to reach it’s full potential, considering the fact that it’s still below it’s all time high, despite speculations of potential 100% gain from it’s all time high. Adoption is also on the upside which creates a very high demand for bitcoin.
Ethereum
Ethereum is the second largest crypto currency. Also the most important crypto currency in the Defi ecosystem, serving as the primary foundation for various Defi apps. Ethereum’s ERC-20 and ERC-721 token standards have allowed it to house several defi protocols. This in turn leads to increase in adoption and a strong community for ethereum. Ethereum’s large market capitalization and liquidity makes it a good asset to DCA into.
Altcoins
The two largest crypto currencies might be the best low risk assets to DCA into but there are crypto currencies with potentially higher returns on investment. With over 14,000 crypto currencies on coinmarketcap, a lot of them are set to make new highs in the coming bullrun, however, the higher the potential reward, the higher the risk involved.
Factors to consider when selecting altcoins
Due to the high risks that comes with altcoins investment, there are some factors that must be considered before your invest in any coin. You don’t want to invest your money in something with low level of certainty.
A few factors will help you to reduce risk while picking out which coin is okay for DCA. Among these factors is market cap. Market capitalisation of a coin indicates the total value of a coin in circulation. The higher the market cap, the bigger the community of a crypto project. Crypto projects with big community are usually strong and have higher upward potentials than crypto projects with small communities.
Team
The team behind crypto projects matters a lot. A crypto project with anonymous team for example may not be transparent and may misbehave in the long run which consequently may lead to the loss of value of such projects.
Another thing is the experience and credibility of the team. A team containing people who have worked in successful companies in the past are likely to lead their new project to success, considering their experiences.
Technology
A standard crypto currency should have a purpose. The project behind a crypto currency must be solving a problem or bringing a product to the market. And the technology that underpins such projects is a very important factor to consider when choosing your investment options. PoW and PoS for example are not really new to the market anymore, but security and scalability are still hot topics in the crypto space. A new crypto currency bringing better solutions to such problems will be interesting to watch.
Factors to Consider for DCA
Risk tolerance
While DCA is a very useful approach to investment, it is always advisable to invest only with what you can afford to lose. This means that you shouldn’t just keep buying with hope while exceeding you tolerable limit. DCA is good, but crypto Market is also volatile.
Investment goals
Investment goal is important, Be very sure that you set achievable goals for your investment. This means that you should always have Target profit for your investment and when it’s time to take profit, do not let greediness persuade you into waiting for more profits.
Market trends and analysis
Lastly, always analyse the market and follow the trends. It’ll help you to predict what’s coming and to know how to prepare.
Conclusion
Bitcoin and ethereum still remain the dominants in the crypto market. Their uniqueness and contributions paved way for their growth, and further growth is inevitable as adoption increases. Additionally, among altcoins are those that’ll skyrocket in the coming months, paying attention to some things like market capitalization, team and the technology behind the project will help you to identify which coins are best for DCA. Do not forget to diversify your investment and do research actively to make sure you do not miss the most profitable Opportunities.