Recent years have seen a meteoric rise in demand for DCA crypto-specific automation solutions. Automatic trading systems with attractive names like DCA (distributed cost average) and Arbitrage lured many traders into false hope. While the latter may seem appealing at first, it’s actually a trap that might have severe consequences for those who have staked their financial futures on cryptocurrency investments.
A common method of lowering the overall cost per asset, DCA is purchasing a number of smaller assets over a long period of time. It’s a good plan if the asset in question has solid underlying fundamentals, such as government bonds or blue chip stocks, but it doesn’t usually pan out for assets that are highly volatile or susceptible to outside influences.
The thought of progressively amassing Bitcoin or Ethereum through DCA buying has captivated the whole cryptocurrency world. Many suppliers of automated processes have begun advertising DCA bots for use on cryptocurrency spot markets. The plan seems brilliant on paper: you’ll be purchasing and holding onto Bitcoin in relatively little amounts over the course of many years. Your investment portfolio steadily rises in value over time. There are no dangers, and the rewards are substantial.
Nevertheless, reality cut these hopes in half in the second quarter of 2022, when the entire market lost over 60% of its value due to macroeconomic concerns and a lack of faith in the promising future of many blockchain initiatives. Unfortunately, it became clear that DCA shouldn’t be used to buy highly speculative assets.
Where do you even begin?
The wisest course of action for anyone with cryptocurrency holdings is to cash out when profits are available. It’s possible that only Bitcoin and Ethereum have a chance to rise in value over the long term. Recent developments, however, have shown that the decline is more indicative of a longer-term trend, and that the time when these assets return to the gilded heights they gained at the start of 2022 is still very far off.
If you are profitable and have the bulk of your assets in cryptocurrency, you should consider selling to realize your gains. Only risk-takers with deep pockets should keep and add to their holdings of these coins. Investors who are overly optimistic about the future of the crypto market are setting themselves up for disappointment.