I am always a keen fan of dollar cost averaging (DCA for short) for all sort of investing. This includes investing in crypto. However I was watching some videos on Youtube on “experts” doing research on these two strategies and apparently they found that in most cases, the investor will usually benefit more from lump sum investing rather than dollar cost averaging. The studies show that this is true for the long run (13 years/10 years) and they usually took samples from the S&P 500. The S&P 500 are the stocks of the largest 500 companies in the United States Stock market.
First of all I am not saying that they are wrong in any way. The studies do give much credence to the fact that if you invest the entirety of your funds into a relatively safe stock market, you will reap the results. However it is important to understand that we are talking about the S&P 500 and not the Crypto market, where prices fluctuate wildly even within a span of a few minutes. In most cases, big companies will continue to do well and hence if you invest in their stocks in the long run, you will very likely see gains. It is just like the idea of HODLing Bitcoin and Ethereum. Just imagine if you have held Bitcoin and Ethereum since 2013, what would your portfolio be like now?
And as the studies use the example of investing early instead of later. So it does make sense that (in most cases) if you put in the entirety of your funds to the stock market in January of the year compared to investing at every month (January to December), you will most likely gain more benefit because you actually invested earlier. This is completely understandable. Again just imagine you bought in Bitcoin early this year, what would your portfolio be like now? However it would be a very different story if you invested the entirety of your funds lets say in early May of this year. Early May is the peak of the bull market and Bitcoin was at its all time high. So what would your portfolio be like now? You would probably be cursing that the person who told you to pump everything in right? But if you were to dollar cost average into Bitcoin for this year, what would your portfolio be like now? Sure it will definitely not be as good as when you pump in during January. But it would be way better if compared to if you had pump in during May. There is no way for anyone to really know when the bull run will start and when the bear market will come in. If you know, do let me know. And we are small time investors. Do we need that kind of risk? And we are only talking about the most stable of cryptocurrencies – Bitcoin. How about for other altcoins in the market? Their volatility is legendary. One of the biggest curses in the cryptomarket is DOGECOIN. Just imagine what the portfolio would be when someone brought in DOGECOIN during the peak? More than 1/3 paper loss. How about those rug pull projects? Complete loss for those investors.
The video also mentioned that the psychological impact on the investor who throws everything in one lump sum. I think that makes perfect sense. Surely spending countless sleepless nights wondering whether you have made the correct investment is definitely not something we all want to do. Mental health bro! Dollar cost averaging helps keep the sanity of the investor. I mean if you see the project going downhill and its token price dropping, stop throwing money at it then! Or even if you got rugpulled, the loss will still be lesser compared if you have dumped all your funds in.
However with that said, if you are a prudent long term believer of crypto projects and the technology behind cryptocurrencies, you should start invest early instead of later. The studies did show that in almost all cases, the earlier you invest, the greater the gain. And please invest in real crypto projects instead of meme coins or those hype coins without any practical real-use cases. Get rich quick schemes seldom work.
I am not a financial advisor. All information given is purely for entertainment purposes. Do your own research when it comes to investing!