What is Cost Averaging in cryptocurrencies?

TL;DR

Cost averaging is an investment strategy where people regularly buy a fixed amount of an asset regardless of the market fluctuations. The goal is to reduce the risks and potentially lower the average cost over time. This strategy helps people build their cryptocurrency portfolios without stressing over timing the market.

Why Cost Averaging works for beginners

Beginners are often intimidated by cryptocurrencies’ high volatility and unpredictable price swings, making it difficult for them to buy their first asset. As there are hundreds of strategies to choose from, finding the right strategy that matches a person’s personal style can be a head-scratcher. It’s a simple and convenient concept that anyone can easily understand.

In cost averaging, the main approach is to regularly purchase an asset, usually done on a routine timeline – either daily, weekly, or even monthly, depending on one’s convenience.

Cost Averaging made simple

Rather than timing the market, a trader can set aside a fixed amount of money regularly to trade crypto. This disciplined approach removes emotional decision-making and builds portfolio over time. Instead of making a one-time purchase, regular trading ensures steady participation in the market, regardless of price fluctuations.

Buying cryptocurrency with the same amount of money regularly means the possibility of getting more when prices are low and less when prices are high, making it easier to build up over time. Let’s say you spend Php 10,000.00  on a weekly basis, it would look like this:

Sample Calculation

This is not financial advice – conducting thorough research before making financial decisions is important.

Alternative Link to the Sample Calculation 

By spending PHP 10,000 each week, an average total of 282 tokens were collected over four weeks. Even when prices went up, cost averaging helped smooth out the highs and lows – bringing the average token price to PHP 142.

Instead of trying to guess the best time to trade, this strategy makes it easier to grow holdings steadily over time. Over time, this strategy promotes a structured and disciplined trading habit while helping to accumulate cryptocurrency at an average price rather than making a single trade at a potentially higher price.

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DISCLAIMER: : PDAX reaffirms that the statements in this article do not constitute financial advice. PDAX does not guarantee the technical and financial integrity of the digital assets and their ecosystems. Trading with any cryptocurrency is subject to the user’s risk and own discretion and must be done after adequate and in-depth research and analysis. PDAX does not endorse or approve any cryptocurrency, and assumes no responsibility for the content, accuracy or completeness of the same.

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