This post is only for educational purposes and should not be interpreted as investment advice.
If you’re just starting out in the cryptocurrency world you could be more comfortable wading into it than diving headfirst. One of the most popular investing strategies, championed by Warren Buffet’s mentor, Benjamin Graham, is to accumulate and invest in volatile assets by buying a fixed amount on a set schedule, otherwise known as dollar cost averaging. Warren Buffet has gone as far as to say “Among the various propositions offered to you, if you invested in a very low cost index fund -- where you don't put the money in at one time, but average in over 10 years -- you'll do better than 90% of people who start investing at the same time.” Indeed, you may already be doing this with your salary every pay period without even realizing it. Work-sponsored retirement plans in the United States set aside a portion of your salary to invest in a 401k plan. By investing to the cadence of your salary payments, you are dollar cost averaging. So why do is it so popular? Because it is so easy and much less risky in volatile markets than investing a lump sum of money, such as your life savings. Below we’ll discuss the strategy of dollar cost averaging for Bitcoin and other cryptocurrency investments.
To be exact, dollar cost averaging (or DCA), is a method whereby you invest a specific amount in an asset on a set schedule spread out over time. Whether the market goes up or down, the investor puts in the same amount. This mitigates risk of buying when the price is too high or selling when the price is too low by spreading out investments over time and entering the market at a variety of entry points. That means that you will never tweeting like this guy:
By dollar cost averaging, you never have to worry about buying in at the wrong price.
Tying your dollar cost averaging into payroll ensures it’s as unobtrusive and intuitive as possible. This set-it-and-forget-it method is one of the easiest ways to invest, which is why it is being used by Bitwage’s 20,000 users. Bitwage provides an easy solution for investing in cryptoassets through your payroll direct deposit as easily as your 401k. Part of your paycheck goes to your checking account and part of it goes to your Bitcoin wallet. From there, you can invest into any numbers of other cryptocurrenices, such as with ether, dash or litecoin through our uphold integration, or own your own.
Dollar cost averaging is a strategy that is better suited for investors with a lower risk tolerance and a long-term investment horizon. With Bitcoin, the horizon is years ahead, as adoption would mean a revolution in finance. Treating cryptocurrencies as another investment among others, as with dollar cost averaging, balances that revolutionary fervor with a sound approach to risk.
Cryptocurrencies are becoming a new asset class investors are using alongside investments in traditional securities. The way one might invest a percentage of one’s salary in an employer-sponsored 401k plan, one can invest in cryptocurrency, paying in a set amount corresponding to a percentage of your salary. You might decide to make cryptocurrency a part of your larger portfolio. Instead of saving 20% of your yearly income in traditional investment vehicles like 401ks and IRAs containing ETFs and individual stocks, you might decide to invest 18% in traditional vehicles and 2% in cryptocurrency, and aim for a total portfolio balance 9-to-1 traditional-to-crypto, following the same rebalancing methods you would in a traditional portfolio. If crypto explodes and becomes 20% of your portfolio, you can sell and buy other assets until you’re balanced again.
Bitwage offers a convenient direct deposit investment service that allows you to dollar cost average your Bitcoin accumulation with your payroll as you would other investments. We assign you a bank routing and account number that you can provide to your employer as you would any other bank account number for your primary or secondary direct deposit account. We receive your payroll and send you your Bitcoin the next day (or same-day with a Premium Subscription). Check out this post to see how it works!
photo by Jim Makos