Crypto Investing
29 Oct 2021

When is the Best Time to Invest in Crypto? – Rupee Cost Averaging

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What do you think is the best time to invest in crypto?

The most common answer you will get is when the market is falling. It is a good strategy to buy the dips, but not an effective one for long-term crypto investing, as you may miss out on gains waiting for the dips to happen. And, there also exists a risk of emotional biases in your investment decision.

Therefore, as an investor, your primary goal should be to take advantage of all the market cycles and keep your decision free from emotional biases. And, one way to do this is investing through the Rupee Cost Averaging method, commonly known as SIP in India.

Invest In Crypto With Just Rs.100

Rupee Cost Averaging Method in Crypto

SIP or Systematic Investment Plan is a simplified version of rupee cost averaging term that involves investing a fixed sum of money at regular intervals, be it weekly, monthly, or quarterly in cryptocurrencies.

Investing through the rupee cost averaging method minimizes the risks associated with investing in volatile asset classes by spreading your investment over a long period, taking advantage of different market cycles, and reducing the cost of investment. Through this method, instead of investing a lump sum at a higher price point, you invest in a small amount of money at different price points, regardless of the market condition.

It eliminates much of the guesswork- when to invest or not, and emotional biases associated with investing.

Rupee Cost Averaging VS Lumpsum Investment in Crypto

Being an extremely volatile asset class, the benefits of investing through rupee cost averaging outweighs the lumpsum investment in crypto. Some of the reasons are:

Investors don’t need to time the market: Lumpsum investment works the best when it is done at lower levels. It is akin to timing the market, for that you need to closely monitor the market.

Whereas in the rupee cost averaging method, you don’t need to track the market too often or take the pain of timing the market, which is very difficult. Even experienced traders find it difficult.

Low investment required, easy on the pocket: In the rupee cost averaging method, you can start to invest with a small amount of money. For example, investing ₹ 500 every month in Bitcoin or Ethereum.

An investment of ₹500 every month in Bitcoin for the last five years is now worth close to ₹ 3,40,000.

A return of over 1000% in an investment of ₹30,000. Investing through the rupee cost averaging method in cryptocurrencies is easy on the pocket and also takes away the anxiety of investing in an unregulated asset class, which people often experience in the case of lumpsum investing.

Reduces cost of investment: As investments are made in different market cycles in the rupee cost averaging method, the cost of investments is averaged out during the overall investment period. You tend to buy more when the market is crashing and vice versa. It helps you to deal with and embrace the volatility in the market.

You must have understood how rupee cost averaging is superior to lump-sum investing and better than timing the market.

Why Timing the Market is a Bad Investment Strategy?

Here’s one example from the stock market, why timing the market is not a good investment strategy and extremely difficult to execute.

The research was conducted by Bank of America to find out the difference in total returns from S&P 500 if the investor missed out on 10 best days of the market of each decade since 1930 compared to investors who held (or HODL as we call in crypto) through ups and downs of the market.

The research report showcased a huge difference in total return. Since 1930, the absolute price returns of the S&P 500 index is 17,715%, whereas, if we exclude the 10 best days per decade, the returns would be a mere 28%.

The following chart showcases how total returns hugely vary in different conditions.

Source: Bank of America and CNBC

In the above chart, you can observe, the majority of the returns in the market have come from less than 1% of the trading days. And, for an investor, predicting those 1% trading days, when the market will gain the most is next to impossible. And, if we fail to time the market or miss even half of the best days of each decade, the returns will be a lot less.

That’s why it is always termed, investing is boring because you have to stay invested to take advantage of that particular moment in the market that changes everything.

As Warren Buffet once said, “the stock market is a device for transferring money from impatient to the patient.”

Summing-up…

Cryptocurrency market investing is no different from stock market investing, as they both share the same investing principles.

Investing through the rupee cost averaging method is the best and proven investment strategy that works on both stock and cryptocurrencies. It helps you keep your investment journey simple and you benefit the most in the long run.

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.

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