While the average trader will “bet” several hundred or thousands of euros that the price of crypto will move up or down in the short term, the crypto investor might want to look at things a little differently.
Trading and investing are two very different things. Trading is about spotting and exploiting short or very short-term opportunities (usually from a second to a couple of months at most) while the other involves looking at multi-year trends and carefully constructing a portfolio of different assets to reach one’s goal with regard for the risk one is able to take; those goals are usually long-term, multiple years into the future.
An investor must start with an objective and devise a plan to achieve it. Once the objective is set, she will have to consider which asset classes to allocate to whichever part of her portfolio (see this article on “Adding Crypto To Your Portfolio”). Next comes the question of how and how often to buy these assets. The “dollar-cost averaging strategy” (DCA) posits that she should buy as often as she can.
What is the dollar-cost averaging strategy?
It is best summarized as the following: invest the same amount of money on a schedule, and do not look at the price of what you are buying.
It is a strategy in which the investor divides the total amount to be invested across periodic purchases of an asset so as to reduce the impact of short-term volatility on the overall purchase. This means that an investor will buy the asset, no matter the price, on a regular, set time basis (for example, weekly, monthly, quarterly).
This decreases the likelihood that you just happen to buy in, with a large amount of money, on the day that your asset is at its most expensive that year. It also removes all the work and stress of timing the market, to try to purchase at the best price since (1) this has pretty much been proven that it is not possible, (2) the time horizon is in years so it doesn't really matter (3) you have better things to do with your life and it is a very good compromise; especially since it requires zero work.
Additionally, employing such a strategy reduces the effects of our all-too-human cognitive biases. By setting and forgetting a plan (and reviewing it once a year or so), an investor is at much less risk of making counter-productive moves out of fear or greed, such as selling in a panic (panic-selling) or buying out of a fear of missing out (FOMOing).
Who uses the DCA strategy?
Pretty much all private pension programs in the world. The way they work is almost universally the same: you make monthly contributions - from your paycheck and/or by your employer - to a fund, regardless of the price of the fund on your payday. Over the course of the year, you have more or less paid the year’s average prices for a share in the fund, whereas if you had bought it all at once you could have been strongly impacted by short bursts of volatility ).
Here is a very simplified example of averaging your cost into a fund as opposed to buying it all at once. Using the prices of IMIE.