Dollar-Cost Averaging — Your guide to Bitcoin Investment in 2021
In his recent interview with Cointelegraph, Anthony Pompliano popularly also known as — Pomp the most bullish Bitcoin Investor of all time made a case for investing in Bitcoin using a Dollar Cost Averaging strategy.
According to Pomp, the Bitcoin rally of 2020 quite differs from the Bitcoin rally of 2017, as this time around investors are more educated and are supported by better blockchain infrastructure leading to “True Adoption” of the digital currency.
On the other hand, Pomp also argued that supply shock coupled with the demand shock is likely to pull up the dollar price purchasing Bitcoin. He “conservatively” predicts that by the end of 2021 Bitcoin may peak to $100,000.
In similar lines, he also mentioned that the fiat system has reached a tipping point, where the Federal Reserve Balance Sheet is inflated causing the Dollar to become weaker.
Pomp advises that in order to make a transition from the old falling central bank system to a decentralized cryptocurrency system, crypto investors should, “determine the allocation of their investment portfolio and follow dollar-cost averaging”
What Dollar-Cost Averaging?
In contrast to the nerve-racking experience of timing the highly speculative and highly volatile Bitcoin market, retail investors can follow a simpler, yet prominent and effective Dollar Cost Averaging strategy.
Suitable as Time in Market beats Timing the market, dollar-cost averaging is a method where investors set aside a certain portion of their fiat currency to purchase cryptocurrency over a certain interval of time.
The goal of such an investment strategy is to gradually increase one’s exposure to investment assets over time, rather than undertaking the risk of buying and selling the much volatile asset on a day to day basis. Much like forging a habit to invest in Bitcoin than getting swayed away by the speculative nature of this market.
The strategy particularly works well as the average comes into play. The average cost of buying Bitcoin smoothes out and reflects the average price of Bitcoin over the lifetime of the portfolio. Following this approach gives the investor a better return in the long run.
As quoted by Bitcoin Magazine, if you had put $100 into bitcoin on a weekly basis for five years starting five years ago, your portfolio would have seen a total increase of 664 percent.
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