DCA & Hodling: Stacking Sats

• Why are cryptocurrency prices so volatile？

• What does 'hodl' mean？

• When purchasing cryptocurrencies, how do you calculate the average cost？

• Advanced strategies for cost averaging

Cryptocurrency is a popular form of investment and a new type of internet money. It is frequently likened to gold for its merits as a store of value, with the apparent difference that it is purely digital.

We won't go into detail here about how a cryptocurrency like Bitcoin can have no physical qualities yet still function as a great store of value because we've already written an essay about it.

Tldr: Bitcoin is supported by a significant number of computers that work to keep the network secure.

What's important is that, in comparison to gold, which has been used for over 6,000 years, Bitcoin's novel design and young (it's only twelve years old) means that its complicated value proposition is still being understood and validated.

The fact that people may express their opinions about Bitcoin's worth by purchasing or selling it is what makes it so volatile, especially over short time frames.

Bitcoin has gained in value over longer time periods, despite significant price drops. Bitcoin has always come back, eventually reaching to new all-time highs, even when it falls rapidly in seconds or over long periods of time (known as a Bear market).

Between 2009 and 2020, anyone who acquired BTC (Bitcoin's currency sign) and held on to it would have made a profit.

This is amazing for such a new asset, and there are numerous trustworthy bitcoin models and price predictions indicating that six-figure price targets are not out of the question.

Passive Ownership is defined as holding Bitcoin for the potential of long-term appreciation rather than gambling on short-term profit. This is the first stage in our trip through ways to earn cryptocurrency when you are risking your money rather than just your time. Because past performance does not guarantee future success, the risk is real and must be considered.

Passive Ownership may appear mundane at first, but resisting the urge to trade may be the best financial move you ever make.

It does require an initial investment - which comes with risk - but once you've done that (and we have an article that explains how), there's not much else you need to do except store your bitcoin safely and hope that it will live up to its potential.

What does 'hodl' and 'cost average' mean？

Although the term “passive ownership” is a mouthful, the Bitcoin community has embraced a simpler and more applicable term: “hodling.”

It's become one of Bitcoin's most well-known memes. The story of hodl and how it became the crypto community's defining meme can be found on the Learn Crypto blog.

This term is worn as a badge of honor among hardcore hodlers.

Hodling bitcoin does not involve storing it in your wallet indefinitely; rather, it entails resisting the urge to sell during periods of high volatility.

What does the term “hodl” mean？

'Hodl' is merely a misspelling of the word 'hold.' If you hodl bitcoin, you're holding it in a wallet and have no plans to sell it anytime soon.

Purchasing bitcoin and hodling it for long-term profit appears to be the simplest thing in the world. In fact, resisting the impulse to cash out, whether the market is rising or dropping, or the belief that you can second-guess the volatility and make more money by actively trading the ups and downs, is surprisingly difficult.

Trading necessitates a highly particular skill set and carries a considerably higher level of risk. Learn Crypto even has a full section dedicated to explaining what bitcoin trading entails.

Hodling merely takes patience, and while it is the polar opposite of trading's constant quest for advantageous entry and exit points, it does necessitate a single critical choice about whether to enter the market and access to a lump amount investment.

If you don't want to commit to a single purchase or don't have the means to do so, cost averaging is a highly practical alternative to deciding on a single point of entry.

Stacking Sats - The Cost Averaging Concept

Cost averaging, often known as dollar cost averaging, or DCA for short, is a method of gaining exposure to cryptocurrency that reduces the risk of buying at the peak of the market by making small, regular investments over time.

Consider this scenario: You want to invest $1,000 in Bitcoin, but you're unsure when to buy because of the volatility, or you don't have access to a lump sum.

The expression “stacking Sats” is the crypto equivalent of “saving pennies.” It encourages you to buy tiny sums on a regular basis to gradually increase your investment. The smallest denomination of Bitcoin is a Sat, which stands for Satoshi Nakamoto.

Instead, you might cost average by purchasing $100 BTC every week for ten weeks at the same time, without even considering the risk.

During that time, the price of bitcoin may rise or fall from your initial buy price, but the cost average of your purchase will remain the same.

Over the course of several years, Bitcoin cost averaging has proven to be one of the most profitable investment methods, consistently surpassing most other strategies.

You may compute the profit you would have made by cost averaging into bitcoin at any point in time using websites like dcabtc.com. Dollar cost average for a three-year period from February 2018 to February 2021 would have yielded a 392.9 percent return on your investment.

You might even compare your investment to other assets, such as gold, which would have yielded a meager 23 percent return if inflation were not taken into account.

The advantages of cost averaging a cryptocurrency like Bitcoin are so compelling that several exchanges offer regular buy features to make DCA easier for you. All you have to do now is connect a payment method and let time and Bitcoin's store of value qualities handle the rest.

Benefits of DCA in Condensed Form

Reduced likelihood of purchasing the top - One of the most significant advantages of DCA is that it eliminates the stress and uncertainty of deciding whether to invest a lump sum, as well as the dread of buying at the peak of the market.

Crypto has shown to be a terrific long-term investment, but it is also incredibly volatile, so a DCA method can help smooth out the highs and lows.

There's no need to buy a complete coin - Many people wrongly believe that if you look at the price of Bitcoin, you have to buy a whole coin. This fallacy, known as unit bias, was explored in our blog, but in brief, you can acquire fractions of a Bitcoin (or other cryptocurrency). DCA is a wonderful option for folks who don't have access to a large cash and want to make little purchases at regular times.

Less stressful - It's impossible to deny that cryptocurrencies are incredibly volatile. So, even if you've done your homework and believe that the long-term prospects for adoption and appreciation are favorable, you're still likely to experience doubt and stress when the price - and the value of your investment - falls.

You can push this to the back of your mind by spreading your investment across time and choosing an automated buying option. Risk does not go away, but it is no longer as severe or as absorbing.

It's time to study - Cost averaging is a method of gradually increasing your cryptocurrency investing exposure. You could think of it as following the tortoise's cautious and steady approach rather than the hare's full-throttle, riskier trading method.

Slow and steady allows you to learn as your portfolio expands, and as the volatility levels out, you may gain the confidence to try more advanced investing tactics.

Read more in our blog What are the disadvantages of Dollar Cost Averaging in a Bear Market？

What are the disadvantages of Dollar Cost Averaging in a Bear Market？

Though DCA is a smart approach for reducing volatility when buying cryptocurrencies, it does not eliminate risk. Because prices aren't certain to rise, you can use DCA and lose money. The DCA examples given are for Bitcoin, which has a longer history and a more straightforward value proposition than most other cryptos. Using DCA for a speculative currency will not offset the coin's intrinsic design or use case flaws.

Patience is required - As previously said, DCA is a tortoise-like method to crypto investing that requires patience. This can be aggravating, especially when folks on Twitter are talking about huge, dramatic earnings during bull markets.

Best in a Bear Market - Cost averaging means you won't be able to time the precise bottom of the market, and when prices are booming, a lump sum investment would likely be more advantageous. The whole point of DCA is that you can't know for sure when the conditions are right for a single entry, so you'll just have to accept that you won't fully appreciate upswings, but that you'll benefit once you've gone through both a bear and a bull market.

Advanced DCA techniques

Though cost averaging is meant to be easy, once you've gotten the hang of it, you can branch out into more complicated tactics. These are designed to change the size of your recurring investment based on market conditions.

Cost averaging does not perform well in a rising market, as previously said, but how do you recognize when the market is overheating？

Another approach to consider this is whether price is performing significantly above or below a long-term average. You can use technical indicators like the Relative Strength Index (RSI) or look at how far dependable models like Stock to Flow are moving above or below expectation.

Moving averages and technical indicators are covered in greater depth in our section on how to trade cryptocurrencies, so go there to learn more. If you're new to DCA, wait until you've gained a sufficient understanding of the process before adjusting your usual purchase level.

We'll look at how to earn cryptocurrencies and grow your cryptocurrency holdings in the upcoming tutorial.