A cryptocurrency is a digital currency that is created and managed through the use of advanced encryption techniques known as cryptography.
In 2017, people started to have a growing interest in cryptocurrency, as a currency and a investment asset class (like Gold).
See https://coinmarketcap.com/charts/.
If you are considering investing in cryptocurrencies, it may be best to treat your “investment” in the same way you would treat any other highly speculative venture.
In other words, recognize that you run the risk of losing most of your investment, if not all of it. A cryptocurrency has no intrinsic value apart from what a buyer is willing to pay for it at a point in time. This makes it very susceptible to huge price swings, which in turn increases the risk of loss for an investor.
If you still believe in the long term prospect of cryptocurrencies, and want to own them as part of your investment portfolio, then how-to buy them become your immediate concern.
If you have X US dollars, you could spread the purchases in small fixed amount, over a period, usually referred to as Dollar Cost Averaging (DCA) buying strategy or use the lump sum to buy your preferred cryptocurrency outright.
Which One Is A Better Buying Strategy?
Not much research data are available on the above, though. Luckily, we have enough research data and many personal experiences to tap on in the stock market to give us a good comparison on the pros and cons on each buying strategy.
Dollar Cost Averaging is an automated and disciplined investment strategy. Pros: It removes emotions from the investment process because you’re investing a fixed amount of money each month. This has the effect of smoothing out the price you pay for your investment over time. It also allows you to purchase more shares when the price is low and fewer shares when the price is high since the dollar amount of money invested stays the same each month.
Cons: You incur cost for each buying transaction. The amount adds up that has an impact on your total return of investment. Dollar-cost averaging requires you to hold cash that does not earn a return, because it’s not in the market. The absence of a return on uninvested cash means your money can actually lose value over time due to inflation.
Lump Sum Buying Strategy is to buy the preferred stock outright. Pros: Buy more stocks in a bull market when the entry price is lower. Incurred only a one-time transaction cost in the investment. The full amount of money are invested in the market, bringing more profit on rising stock price.
Cons: You need a large cash outlay and not many people have a large sum of money just lying around waiting to be invested. You may buy it at a high price when the stock market turns bearish suddenly, resulting in a huge loss.
Overall Conclusions: Considering which strategy is right for you depends on your approach and attitude towards investing.
If you’re a casual investor who doesn’t have a whole lot of spare cash, or someone who’s not willing to expose a large sum of money at any one time to wild market swings, then the DCA approach might just be right for you.
On the other hand, if you’re an experienced investor who can afford to invest a large sum of money, or someone who is willing to put in the time and effort to monitor the market, then a lump investment may be the right strategy to adopt.
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Flash News (31-Oct-17): CME Group Inc. is planning to have Bitcoin Future Contracts listed in its exchange before end of this year – The implication is volatility of Bitcoin currency can be hedged! It addresses a major concern of Bitcoin’s usefulness as a stable stored currency.
CME Group Inc. (Chicago Mercantile Exchange & Chicago Board of Trade) is an American financial market company operating the world’s largest options and futures exchange.
If you would like to know whether you are ready for it, please read my recent post on “5 Tips To Trade Bitcoin Or Volatile Cryptocurrency”
For cryptocurrency starter, you may like to consider opening an account with Coinbase, a secure online platform for buying, selling, transferring, and storing digital currency.
Note:- If you buys or sells US$100 of digital currency or more through Coinbase using this link, you and your referral will both get US$10 worth of free bitcoin.
Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.
If you’ve any comments, please drop me a line.
Reuben Ong
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