Crypto Investing
24 Feb 2022

Worried about market volatility in crypto? Try the Recurring Buy Plan

Ananda Banerjee

Do you know what’s better than gulping down a cold drink on a hot summer day? Sipping it slowly and enjoying every mouthful. Well, that is exactly how the Recurring Buying Plan (RBP) feels. Most definitely and always better than a rushed swig. 

Key Takeaways

  • RBP or a Recurring Buy Plan for crypto is meant for sustained purchases
  • Crypto dips can be created by market manipulating whales
  • Crypto RBPs follow the principle of Cost Averaging
  • RBPs are better bets for those with lower risk appetite, small capital, and long-term goals

Let us start with a question.

Have you ever brought the dip just to see the market dipping further? That’s not a hypothetical question. It happens. A realm as volatile as crypto does see several dips. But not every dip is a good buying opportunity.

That’s because dips in crypto, regardless of the token, are often induced by whales, who end up short-selling assets, only to buy them later. The deliberate price debasing in many cases isn’t an organic dip and might not be followed by a quick move. And while there are several organic dips to make good use of (provided you DYOR), it is way too much work to keep looking for opportunities.

This is precisely where an RBP comes in. A recurring buy plan lets you allocate a small chunk of your capital towards preferred assets, ensuring long-term buying, and an average price. And if you look at the bigger picture, RBPs give you a better cumulative buying price, and that too with far fewer frowns.

But that’s not all there is! Read on to know how a generic concept like this one can become your biggest crypto purchasing tool.

What is an RBP, and How is it Relevant to Crypto?

A Crypto RBP, as the name suggests, is a recurring crypto buying plan. And due to its periodic nature, an RBP follows the principle of Cost Averaging.

In simple terms, this means ensuring a constant buying frequency and price for an asset without losing sleep over “Timing the Market.”

And in a space as volatile as crypto, where sentiments and hype still play a role, Crypto RBPs make a lot of sense.

Features of Crypto RBP

Crypto RBP vs Crypto DIP: The Math involved

Imagine you have ₹120 (fixed capital) to buy as many units of a crypto asset as you can. The asset is priced at ₹10, so you will be able to purchase 10 units of the same if you buy it right away.

The ‘Dip’ way: The price drops to ₹9, and you end up buying 5 units, thereby spending ₹45. However, after a few days, the price suddenly drops to ₹5 due to a sentimental move or bad news. You consider this as the final dip and quickly end up buying 15 units at ₹5, thereby spending the remaining ₹75. The average price here is ₹6, as you now have 20 units of the asset and ₹120 invested.

And now, even if the asset dips to ₹4 or ends up moving sideways for a short while, you cannot add more capital to average and lower the buying price. Your only option to register some gains is to wait for the asset to move beyond ₹6.

The ‘RBP’ way: You allocate ₹10 each month for 12 months to buy some units of the asset concerned at a given price. And as the capital allocation is uniform, you might be able to get a better average price over a more extended period.

For instance, imagine that the table below indicates how the demo asset moved in 2021, during a 12-month RBP run.

Table 1: Comparing RBP and DIP Buying Patterns
(Limited Capital of ₹120, Time frame-12 Months)

RBP Hypothetical Chart

Table 1 makes it clear that the market has more or less moved in a range with a few dips along the way. And while limited capital and dip-buying would have depleted your capital by April, a steady ₹10 investment/month would help you collect 20.4 units of the asset, at an average price of ₹5.88 by December.

When to prefer RBPs over DIPs

As you can see, both Dips and RBPs have their place in the crypto realm. However, you should consider crypto RBPs when you:

Have a small corpus

Crypto RBPs can be excellent purchase instruments if you have limited capital to use. As the allocation is phased, you will not need to shell out a lot of money at once. Instead, you can automate monthly RBPs with an amount as small as ₹100 in the preferred crypto asset.

Simply put, RBPs help you find the average buying price and spare you the risks of volatility. 

Have a low risk-appetite

RBPs might not always get you the lowest price band in a given period. What they will do is to find the average buy price, which could still be relatively lower than the final selling price! RBPs even allow fixed, automated purchases, which defeat massive short-term price fluctuations and impulsive decisions.

Wish to hedge against volatility

The crypto market is brimming with whales who can push the market in any given direction, breaking even the strongest support and resistance levels with ease. RBPs, however, are independent of these levels. As they follow fixed buying cycles, they remain unaffected by short-term whale invasions.

Are ready for long-term exposure

Do you know what HODLing is? It is appropriate to consider RBPs at par with other HODLing strategies. RBPs are long-term, recurring investments made into specific crypto assets, and are akin to holding them for a long, long time.

And as the prices are best averaged across purchases, the long-term exposure of RBPs is expected to give you an edge over short-term buying and selling.

Fewer worries

Buying the dip requires identifying the dip via market indicators. And it’s a lot of grunt work which may yet turn out to be futile. Drawing charts, finding trendlines, identifying support and resistance zones, and pushing for the right momentum and volatility indicators to discover a value buying zone is a different level of heavy lifting.

With RBPs, you do not need to worry about all that. While you would still need to get the fundamental analysis on point to identify the most promising assets, you don’t need to do the complex, technical work to find the right entry and exit points.

Can There Be Downsides to RBPs?

Yes but the downside is the upside. Here are some things to keep in mind before committing yourselves to a crypto RBP:

  • No instant buying and selling opportunities
  • Might block capital
  • Not meant for day-to-day trading
  • RBPs might not help you identify key drops

Wrap-Up

RBPs in crypto are safer, more reliable, and long-term. While buying the dip can give you that adrenaline rush and help you find key value buying points on daily or hourly charts, RBPs take a more persuasive stance towards bringing new investors into the crypto fold.

While both approaches have their pros and cons, sipping on crypto sounds a lot more controlled and realistic than trying to outsmart the whales.

Interested in checking out other features that we offer. Download the CoinSwitch App right away and dive in.

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.

writer

Ananda Banerjee

Content Writer

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