How DCA`ing can help achieve long-term goals
A loss aversion bias is always present in the markets. When someone values not losing their money more than making money, they have a loss aversion bias. This is particularly true in the case of the Ethereum market.
ETH has lost 30% in a month, but has gained over 2.5X in a year. If you asked someone who acquired ETH more than a year ago, they’d be even more dissatisfied with the 30% loss despite the 2.5X rise. For you, this is loss aversion. But, instead of averting the loss, what if it could be lowered with a simple investing strategy?It’s Simple To Outperform The ETH Markets
In January 2022, we’ll look at dollar-cost averaging (DCA) ETH at regular periods. The altcoin had one of its worst months in the preceding month, falling below big cryptocurrencies like Bitcoin, BNB, and ADA. It goes without saying that exceeding ETH was rather simple.
The purpose of this DCA strategy isn’t to outperform ETH with a different cryptocurrency. It’s to outperform ETH’s monthly fall while remaining invested in the cryptocurrency. In reality, with this strategy, we’ll be able to acquire ETH when it falls in value on a regular basis.A daily strategy
Every day in January, if you had $1,000 to spend on ETH, you would spend $32.2. This way, the volatility of each day of the month is averaged out. From a high of $3,828.8 to a low of $2,411.9 per day.
A purchase of $32.6 for the month of December yields 0.3347 ETH. This was purchased for $3,053.7 per ETH on average. In comparison to ETH’s 29 percent drop in the month, the original capital of $1,000 would fall by 9.9% to $900.1.
- $32.6 for each interval
- 31 intervals
- ETH purchased: 0.3347 USD equivalent: $900.1 Average ETH price: $3,053.7
- -9.98 percent profit/loss
- +18.59 percent Alpha/Beta
Now we’ll take a weekly strategy, where we’ll buy ETH every Monday in January. This would offer you five $200 purchases. From the weekly high of $3,766.0 to the weekly low of $2,441.7, you can average out the volatility of each week in this way.
A $200 purchase over the course of five weeks in January yields 0.336 ETH at an average price of $3,125.5. Due to the continual fall in the price of ETH, your initial investment of $1,000 becomes $905.1, a loss of 9.5 percent.
- The cost of each interval is $200.
- 5 intervals
- ETH purchased: 0.336 ETH USD investment: $905
- The average price of ETH is $3,125.
- -9.5 percent profit/loss
- 19.09 percent Alpha/Beta
Taking a monthly approach
Finally, there’s the tried-and-true buy-and-hold technique. You can buy the asset on the first of the month this manner. You wait until the end of the month to sell. The daily or weekly highs are omitted in this method, leaving only the first and last day’s price to be concerned with.
On January 1, a $1,000 purchase of ETH would cost $3,765.7 on the market. This would leave you with a 0.265 ETH balance. This method resulted in a loss of -28.57 percent, reducing your $1,000 into $714.2 by January 31. The monthly high for ETH was on the second day of the year, and it has since plummeted by 30%.
- $1,000 for each period
- 1 ETH purchased: 0.265 ETH
- ETH investment in USD: $714.2
- Average ETH price: $3,765.72
- Proft/Loss: -28.57 percent
Spread your risk evenly and keep your losses to a minimum.
Let’s face it, ETH had a bad month in January 2022. Since November 2021, the altcoin has lost 30% of its value and is now down over 50%. However, this loss is peak-to-trough, and it would be much smaller if a DCA technique had been used.
Consider buying ETH on a daily or weekly basis during a negative month. The losses were reduced to 9.5-10%, compared to roughly three times higher losses for the monthly strategy. As a result, the gain from this strategy is spread out over a longer period of time, and losses are minimised.
Disclaimer: The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry.