Cryptos are still coining it
WAY TO GROW: INVESTING A BIT MONTHLY
Gains are so dizzying many feel they’ve missed boat – but there had been surges like these before.
This may be a frightening time for anyone considering getting involved in cryptos for the first time. Bitcoin appears headed for $60 000 (about R887 000) after cracking $20 000 two months ago. It’s up 185% in just eight weeks.
Ethereum broke $600 just two months ago and is now headed for $2 000 – a gain of 230% in two months. Cardano is up nearly 500% in the last two months.
These gains are so dizzying that many fear they have missed the boat, though these same fears were expressed in prior years when bitcoin first broke R10 000, then R100 000, and then R300 000.
Each time bitcoin has broken its previous high.
“Many people fear crypto prices have shot [up] so high that it is too late to enter the market, but we should remember that there have been price surges like this in the past,” says Farzam Ehsani, CEO of crypto exchange VALR.
“Instead of trying to enter at a favourable price, investing a bit every month is a proven way participate in the rise in cryptocurrencies like bitcoin.”
Moneyweb previously reported on the advantages of rand cost averaging in November 2020, but that article certainly needs updating in light of recent price moves.
Had you invested $100 a month over the last three years, your total capital invested to date would be $3 700. That $3 700 invested would have grown to an astonishing $25 000 over three years.
Dollar (or rand) cost averaging is where you invest a regular amount of money in an asset, usually monthly or weekly.
Investing $100 a month for three years would have grown your bitcoin holdings to $25 000, a 575% growth on the capital invested. By way of comparison, the same amount invested in the Dow Jones Industrial Index would have returned $4 460 over the same period, while gold would have returned $4 488.
The rand cost averaging strategy is advisable for investors who are looking to buy bitcoin for the long term, since it protects them from potentially allocating all their capital at a price peak.
Time your investment
It is possible to tweak this strategy by using charts to time your investment, particularly when bitcoin looks oversold on a relative strength index (RSI).
Prices are generally considered “overbought” when the RSI is above 70 and “oversold” below 30. Bitcoin’s RSI hasn’t been near 30 in months due to the strength of the bull market, so an RSI of 40-50 would have substituted for a good entry point.
For those with little technical knowledge of markets, however, it is better to avoid trying to time the market.
Sean Sanders, CEO of crypto investment platform Revix, says rand cost averaging has become a favoured method for retail investors looking to capitalise on the phenomenal growth in crypto assets prices in recent months.
“It’s a relatively safe way to invest, and you don’t get too hung up on the volatility in crypto prices,” says Sanders. “When prices drop, you get an opportunity to buy in at a lower price, but we haven’t seen much of that opportunity in the last few months. Since November last year, the prices have been headed one way, and that’s up.”