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When should I buy Bitcoin? Although it is impossible to answer this question clearly, it is quite easy to approach the answer. As in most asset classes, a long-term investment plan is often the best strategy.
A long-term strategy also allows investors to escape the volatility of Bitcoin. Although past performance does not guarantee future returns, BTC has provided consistent long-term growth since its launch in 2009.
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This idea is supported by CoinMarketCap data highlighting the average price of Bitcoin over the past 10 years:
- Today: $29,137
- 1 year ago: $21,362
- 2 years ago: $35,350
- 3 years ago: $9,677
- 4 years ago: $9,912
- 5 years ago: $8,181
- 6 years ago: $2,576
- 7 years ago: $654
- 8 years ago: $289
- 9 years ago: $601
- 10 years ago: $97
According to the data above, BTC has experienced a lot of fluctuation over the past decade. For example, those who invested nine years ago would pay an average of $601. A year later, the price of Bitcoin reached an average of $289, a drop of over 50%. However, by waiting three more years, the average price of Bitcoin rose to $8,181. From the original cost price of $601, this means growth of over 1,200% in just four years of trading.
Over a longer period, BTC was worth an average of just $97 10 years ago. Today, with prices above $30,000, Bitcoin has achieved a return of over 30,000% in 10 years. As a result, Bitcoin has historically rewarded those who hold it for a long time. However, this can be challenging for investors who can’t cope with extreme price fluctuations. For example, many investors will panic and sell when BTC prices continue to fall. Experienced BTC investors, on the other hand, will increase their assets due to current discounts.
How Much Bitcoin Should I Buy Today?
Investors should also consider the size of their investment when buying Bitcoin for the first time. There are many variables to consider, which we will discuss in more detail below.
Disposable Income
An investment in Bitcoin should only be financed with disposable income.
- For example, assume an investor receives a monthly salary of $3,000.
- $2,500 of this amount is allocated to basic expenses such as rent, food, and electricity.
- This leaves $500 in disposable income.
Investors should not forget that the value of BTC can rise and fall. If there comes a time when the investor needs to sell their Bitcoin to meet an urgent expense, they may get back much less than they initially invested. With this in mind, investors should only buy Bitcoin with money they won’t need for short-term financing.
Dollar-Cost Averaging and Lump-Sum Investment
Some people will buy Bitcoin with a lump-sum investment. However, considering how volatile Bitcoin prices can be, this is a risky move. Instead, investors may consider taking the average dollar cost in Bitcoin purchases. For example, assume an investor has a total of $20,000. They invested all $20,000 in November 2021 when Bitcoin reached $68,000 per token. This means that the investor can only start over when Bitcoin reaches $68,000.
Let’s now consider the result when the dollar-cost average is taken. The investor decides to invest $1,000 each month for the next 20 months.
An investor who bought $20,000 worth of Bitcoin in one go reached a cost price above $68,000.
The investor also paid a starting cost fee above $68,000. However, this was only at an investment amount of $1,000. The investor then set aside $1,000 for Bitcoin each month. The result? The investor’s average cost price is below $35,000. This is because each $1,000 investment averages the price according to the broader market.
So if BTC markets start to fall, the investor will lower their average cost price even further. However, if markets rise, the investor will start to see gains.
How Often Should I Use Dollar-Cost Averaging for Bitcoin?
- There is no fixed rule when taking a dollar-cost average, but consistency is important.
- For example, those who prefer to invest in Bitcoin monthly should avoid skipping months. This will ensure that the average cost price is in line with the broader market.
- Considering how volatile Bitcoin can be, a weekly dollar-cost average can also be taken.
- After all, Bitcoin can rise and fall by double-digit percentages in a week of trading.
- However, in the end, investors should never realistically invest more than they can afford to lose.
Don’t Become Overexposed to Bitcoin
While taking a dollar-cost average is a smart strategy for long-term investors, it’s important not to become overexposed to Bitcoin. That is, investors need to avoid putting all their eggs in the same basket.
Experienced investors understand this concept, so they will have a well-diversified portfolio. There’s no one-size-fits-all solution for diversification. Everything depends on the investor’s risk appetite and long-term financial goals.
For example, some investors will turn to many different cryptocurrencies. This could include some of the best auxiliary tokens, such as Ethereum, BNB, Solana, Arbitrum, and EOS. Some investors will also add the best penny cryptocurrencies to their portfolios. This includes XRP, Dogecoin, TRON, Polygon, and Stellar.
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