Auto-Invest strategies in a volatile crypto market: how to drop risks and achieve long-term gains

The cryptocurrency market has been turbulent recently, causing many investors to worry about alts. However, from another perspective, this market adjustment could also be a positive development. In the current market environment, high-quality projects are expected to stand out, while low-quality projects may be eliminated. Most alts have fallen by more than 30%, while mainstream crypto assets, although also experiencing a decline, still serve as the market's barometer.

This incident has sounded the alarm for investors: do not bet all your funds on a single coin. A more robust strategy is to allocate at least 50% of your funds to mainstream crypto assets such as Bitcoin and Ethereum. For investors looking to participate in mainstream coin investments, a dollar-cost averaging strategy may be a good choice.

The dollar-cost averaging strategy differs from traditional trading methods. Traditional traders usually decide the amount to buy based on the price levels, whereas dollar-cost averaging involves buying according to a plan regardless of the price. Some investors choose dollar-cost averaging because they are not skilled in technical analysis or short-term trading, and others realize that in the long run, the success rate of short-term predictions is only about 50%, thus preferring a long-term investment perspective.

The volatility of the crypto assets market is extremely high. For example, in 2020, the price of Bitcoin fell from over $10,000 at the beginning of the year to over $3,000 in March due to the pandemic, and then climbed back up to over $60,000 in 2021. This dramatic fluctuation caused many investors to either get liquidated or miss out on opportunities. In contrast, those who stuck to long-term investments, even if they experienced losses along the way, ultimately achieved considerable returns.

The core of a dollar-cost averaging strategy is to have a long-term positive outlook on a specific asset. If you are not optimistic about a particular Crypto Asset, then there is no need for dollar-cost averaging. The advantage of dollar-cost averaging is that, due to regular purchases, the holding cost will converge towards the average price during the dollar-cost averaging period. As long as the dollar-cost averaging period is long enough, typically over a year, the average cost will not be excessively high.

However, dollar-cost averaging also has its drawbacks. Since it is a "non-timing" strategy, there is no guarantee that starting to invest at any point in time will be profitable. For example, dollar-cost averaging from December 2021 to now for nearly 5 months may result in losses. A more extreme case is that if the price of Bitcoin falls below $28,000, investors who have been dollar-cost averaging Bitcoin for nearly 3 years (2020-2022) may face losses.

Therefore, the key to dollar-cost averaging is to choose assets that are bullish in the long term and to have the patience to wait for the next cycle's peak. Only assets that appreciate over the long term can offset the problems caused by market timing.

For investors who want to implement a dollar-cost averaging strategy, it is recommended to adopt a fixed time and fixed amount approach, choosing to invest once a month or once a week. Since you have chosen dollar-cost averaging, you should minimize subjective timing and avoid frequently adjusting the buying quantity based on short-term market fluctuations. In the long run, the cost of a single purchase is not the most important factor.

The current market environment may be a good time to start dollar-cost averaging. Each significant fall or a market drop of over 5000-10000 points can be seen as the starting point for dollar-cost averaging. In the future, we will continue to monitor market dynamics and analyze quality projects in other potential areas.