Sometimes, you might be the greatest threat to your portfolio’s well-being.
Market fluctuations can trigger a strong impulse in many crypto investors to hit the sell button, which is understandable. Currently, Bitcoin (
BTC
2.36%) is valued at around $90,000, having dropped approximately 20% from its nearly $125,000 peak in early October. If you hold XRP (
XRP
3.46%) or Ethereum (
ETH
2.45%), the situation is quite similar, with slightly worse losses during the same timeframe.
In such a volatile market, investors often face a significant danger stemming from their emotional responses and hasty decisions. However, there’s a vital strategy that can help alleviate this risk, so let’s explore it.
Emotions Aren’t Good Risk Managers
When one of your coins drops 20% or more swiftly, it can feel as though the market is deliberately insulting you. For many, losing $1,000 is more painful than gaining the same amount is pleasurable, making it difficult to stay calm enough to buy the dip when the opportunity arises. Conversely, panic selling can lock in losses that time and patience might eventually remedy.
For example, a composed investor might perceive Bitcoin’s recent decline as a standard market cycle or a healthy correction after a significant increase over the previous three years. In contrast, someone frequently monitoring price changes may succumb to panic. A drop in Bitcoin usually leads to volatility in Ethereum and XRP, reinforcing the urge to sell and may engender a narrative of an impending market collapse. Decisions driven by your emotions and the latest news can lead to buying when prices are high and selling when fear is dominant—exactly when it would actually be most beneficial to buy.
Time to Activate Autopilot
The best way to significantly minimize destructive impulses regarding your Bitcoin, Ethereum, or XRP investments is to establish an automated, rules-based approach that functions regardless of your emotional state.
This is the essence of dollar-cost averaging (DCA). DCA is a straightforward method where you invest the same fixed amount into an asset on a regular schedule, independent of its price. Most investment platforms and crypto exchanges provide a simple mechanism for this.
By purchasing your chosen assets consistently, both during favorable and unfavorable market conditions, your average purchase price stabilizes, freeing you from the arduous task of timing the market. After accumulating your position and holding it for a couple of years, you can reassess its viability. If it no longer aligns with your investment strategy, you can decide to sell; otherwise, you can simply continue acquiring more. DCA also means that during downturns, using a fixed dollar amount will allow you to buy more units at lower prices, potentially boosting your returns if the market recovers.
While there are no guarantees that dollar-cost averaging will lead to wealth, it can help you avoid self-sabotaging behaviors, like selling in haste during downturns or chasing trends during euphoria. If you already possess Bitcoin, Ethereum, or XRP, remember that while holding quality assets is essential, many risks stem from your investment behaviors rather than the assets themselves. By implementing an automatic purchasing plan, you let autopilot manage your strategy, with the flexibility to change course whenever necessary.
