What is an accumulation plan and how does it apply to the cryptocurrency world? Also called CAP, it is an investment method that involves accumulating a certain amount at regular time intervals.
The purpose of a CAP is to mitigate the risk arising from the expected volatility of the market, by achieving an average purchase price.
Considering that cryptocurrencies are rather volatile, it can be risky to invest the entire capital all at once as this would lead to a single purchase price that could, over time, change in value significantly.
To put it in practical terms, a decision has been made to invest $100 per month (the 10th of each month for five months of the current year) in three different cryptocurrencies. Below, we report the values of the three cryptocurrencies at the 10th of the month at a random time of day.
BTC ETH DGB
- 1/10/20 USD 8,045.00 USD 138.00 USD 0.0055
- 2/10/20 USD 10,081.00 USD 218.00 USD 0.0072
- 3/10/20 USD 8,069.00 USD 198.00 USD 0.0054
- 4/10/20 USD 6,974.00 USD 158.00 USD 0.0065
- 5/10/20 USD 8,521.00 USD 187.00 USD 0.0200
By averaging the value of the purchase, the average cost is the following.
- AVERAGE PURCHASE COST PER BTC: $8338
- AVERAGE PURCHASE COST PER ETH: $179.80
- AVERAGE PURCHASE COST PER DGB: $0.0089
Analyzing the price at 30/05/2020 of the three cryptocurrencies in question, the prices are as follows:
- BTC PRICE: $9551
- ETH PRICE: $234
- DGB PRICE: $0.0177
By comparing our average purchase price with the current value of the cryptocurrency taken into account, we obtain a gross profit of:
- 13% FOR BTC
- 23% FOR ETH
- 50% FOR DGB
We thus invested a total of $1500 over five months in three different cryptocurrencies, resulting in a gross profit of 28.49% which is equivalent to $427.34. (A respectable gain considering the particular moment for the world economy).
In the case of withdrawal of invested funds, it will be necessary to apply accrued costs such as fees and commissions in order to obtain the precise value of the net gain.
In doing so, we have drastically lowered volatility by buying the asset at different times at different values, greatly reducing the risk of entering the investment at the wrong time.
Thanks to the flexibility of this type of investment, it is accessible and functional even to savers who do not have large amounts to invest.
The data from the investment simulation are true and reflect the real value of the assets taken into account.