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One of the biggest concerns for prospective crypto investors is whether it’s too risky to invest in. Bitcoin (BTC 1.53%) and other digital currencies. This is a fair question considering how volatile Bitcoin has been over the years. While some investors have gotten rich by investing in cryptocurrencies, others have lost a lot of money.
However, rather than investing a large amount at once in cryptocurrencies, you may want to consider diversifying your investments over time through a strategy known as dollar-cost averaging. Here’s how your Bitcoin investment would have fared if you invested the same amount at the beginning of every month last year, compared to making a single purchase.
What is the average cost of Bitcoin using dollar-cost averaging?
The benefit of planning to use dollar-cost averaging is that it removes the emotional part of the investment decision-making process. And this is also the part where your intuition and impulsive decisions can sometimes get you into trouble. With dollar-cost averaging, you only need to plan to make purchases at the beginning, end, or middle of each month, regardless of price.
The table below shows the price of Bitcoin at the closing price on each day at the beginning of the month and what it would be by the end of the year if you spread your $12,000 investment across 12 equal investments.
| date | price | investment | BTC | Cumulative investment amount | Cumulative BTC | moving average |
| January 1, 2023 | $16,605.10 | $1,000 | 0.06 | $1,000.00 | 0.06 | $16,605.10 |
| February 1, 2023 | $23,705.10 | $1,000 | 0.04 | $2,000.00 | 0.10 | $19,529.82 |
| March 1, 2023 | $23,631.50 | $1,000 | 0.04 | $3,000.00 | 0.14 | $20,729.13 |
| April 1, 2023 | $28,475.00 | $1,000 | 0.04 | $4,000.00 | 0.18 | $22,241.70 |
| May 1, 2023 | $28,074.50 | $1,000 | 0.04 | $5,000.00 | 0.22 | $23,205.96 |
| June 1, 2023 | $26,814.30 | $1,000 | 0.04 | $6,000.00 | 0.25 | $23,738.36 |
| July 1, 2023 | $30,587.20 | $1,000 | 0.03 | $7,000.00 | 0.29 | $24,522.78 |
| August 1, 2023 | $29,695.90 | $1,000 | 0.03 | $8,000.00 | 0.32 | $25,068.66 |
| September 1, 2023 | $25,811.00 | $1,000 | 0.04 | $9,000.00 | 0.36 | $25,149.03 |
| October 1, 2023 | $27,979.60 | $1,000 | 0.04 | $10,000.00 | 0.39 | $25,406.05 |
| November 1, 2023 | $35,440.10 | $1,000 | 0.03 | $11,000.00 | 0.42 | $26,077.25 |
| December 1, 2023 | $38,703.50 | $1,000 | 0.03 | $12,000.00 | 0.45 | $26,805.99 |
End-of-day prices are based on Google Finance data.
Why investors were better off using dollar-cost averaging
Bitcoin is currently trading at around $39,000, and according to the table above, based on the average cost per Bitcoin of $26,805.99, that would represent a whopping 45% return. I could have gotten a better return if I bought in one bulk purchase at the beginning of the year, but the moving average by the end of the year was lower than what I could have bought Bitcoin at the beginning of most months. It is.
The advantage of dollar-cost averaging is that while the average may go up, that’s a good thing because it means the price of the asset you’re buying will also go up, and as a result, your profits will go up as well. And when the value of an asset falls, the average value also falls. As long as you’re willing to invest for the long term, this is a strategy that can pay off big.
Should I use dollar-cost averaging to buy Bitcoin and other cryptocurrencies?
If you’re considering investing in Bitcoin or cryptocurrencies in general, dollar-cost averaging may be the safest way to slowly introduce yourself to Bitcoin. By not purchasing a large amount, you don’t have to worry about the current price. If the price goes up, you make a profit, and if the price goes down, the average value goes down. However, as long as you are confident in your cryptocurrencies over the long term, this can be an effective way to spread your risk over time. The key is to know how much you want to invest and plan your purchases accordingly.
Due to the high volatility and risk, investing in cryptocurrencies is not suitable for everyone. But with dollar-cost averaging, you can reduce that risk through planning.
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. David Jagielski has no position in any stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Bitcoin. The Motley Fool has a disclosure policy.
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