Dollar-cost average (or known as DCA) is the most effective way to increase your Ethereum-related wealth or wealth (denominated in Ether – native currency of Ethereum).
Cryptocurrencies Are Volatile
Cryptocurrencies, including Ether, are notoriously volatile – up, down, up, down, etc. So, when do you buy? You may be tempted to do the following:
- Go all-in at the first sight of a pump
- Rely on Technical Analysis (TA)
- Rely on gossip on Twitter (or crypto-twitter)
- “Buy the dip”
- Don’t buy any and cry when Ether gains 1000%
- Read tea leaves
My advice is to NOT do any of the above. It is a sure way to lose your money – sure, you might get lucky sometimes (but, will you always be lucky?).
Choose Dollar-Cost Average (DCA)
DCA is a discipline way to increase your wealth – it removes any form of emotional trading and ensure that you do not ruin yourselves (mentally and financially).
By dollar-cost averaging (DCA-ing), you can gradually gain exposure to Ether. DCA is the tool that answers the question of “When do you buy?”.
How to DCA?
DCA-ing is simple – just follow this steps (in the order stated below):
- Decide on a TOTAL amount that you want to invest in Ether
- Decide on the frequency for your buys (e.g. Weekly basis for the next 20 weeks?)
- Blindfold yourself and click the “buy” button based on your schedule
DCA ensures that you will end up with the “average” price of Ether over the number of weeks that you have decided. You might miss the dips and the peaks – but you never bought too low or too high. This allows you to artificially reduce the volatility of Ether. Your cost-basis is now the average price of Ether.
How Much Ether Should You Buy?
As you can see, the amount of Ether that you end up with is dependent on the following variables:
- Amount of $ per “buy”
- Frequency of “buys”
- Time period
The amount of $ per “buy” depends on how much of your networth ($$ + property + crypto + etc.) that you want to throw into Ether. As cryptocurrencies (including Ether) are considered as high-risk assets, you should do your due diligence and assess your own risk appetite before buying. Will you be able to stomach and not be financially ruined IF Ether crashes by 90% in 1 week? Decide on an amount that is suitable to your situation and stick with it.
The frequency of “buys” depends on the “base cost” of your transactions. You see, every time you buy Ether, you have to buy a “commission” to your exchange or “wallet” or whatever. There may be a small, fixed, minimum charge for each purchase. If you buy too often (e.g. daily), most of your “investment” will be siphoned away as commission to “THEM”. My personal preference is weekly.
Time period is rather important as well. If you choose a short time period, you might end up being over-invested on a transient, short-term trend – imagine buying into Ether during the last few months of a bull market. But, if you choose a long time period, you will lose potential gains!
Think about the three variables above. Sleep on it. Develop the investing schedule. Stick to the schedule.
DCA With Your Salary
Don’t know how much Ether to buy at this point in time? Fear NOT.
A good way is to DCA a percentage (e.g. 10%) of your salary every month. Received a well-earned bonus this month? Throw in 10% into Ether! By DCA-ing with your salary, you are guaranteed to gradually convert your FIAT money into crypto wealth (specifically, Ether wealth).
Do NOT FOMO buy or FUD sell
FOMO – Fear of missing out
FUD – Fear, uncertainty, despair
Throughout the DCA journey, you might be checking the charts every hour, minute or second. You are reading the forums, the crypto-twitter – letting the shills and FUDsters get into your head. You FOMO buy at the tops and FUD sell at the bottoms. Your crypto wealth is now finished. You now spend sleepless nights over your bad decisions.
Do not do that! Stick to the schedule! DCA is the buying tactic that ensures that you get out in one piece.
Set It & Forget It
Coinbase offers automated buys – you can set it and forget it. The fees are higher than others – but it might be worth it if it stops you from FOMO-buying and FUD-selling.
Buying Ether is easy. Knowing the perfect time to buy Ether? Hard. As a novice, you will screw up if you buy based on sentiment and charts. Use DCA – set it and forget it. It is the simplest way to gain exposure to an asset, any asset (Ether, stocks, etc.)
Good luck on your DCA journey.
Stick to the schedule.