How To Do SIP In Cryptocurrency

crypto

Small drops make an ocean- a familiar saying we’ve heard all our lives.

And the same principle applies to your investment plan as well, with SIPs!

For the uninitiated, a Systematic Investment Plan (SIP) is a plan in which investors make regular, equal investments into an asset. SIPs allow investors to build wealth while also creating a disciplined investing habit.

SIPs are widely recognized today in every financial market as an effective investment strategy for the retail investor, especially long-term investors. And guess what, you have SIPs in cryptocurrencies as well.

What is SIP in cryptocurrency?

SIPs in cryptocurrencies work just like SIPs in traditional finance. You invest a fixed amount periodically (daily/weekly/monthly) into an asset of your choice and watch your investment grow with the magic of compounding returns.

SIPs are ideal for retail investors as it reduces risk by leveraging dollar-cost averaging (DCA). And since you spread your investments over a longer period of time, you reduce the impact of sudden price changes on your portfolio.

As an added bonus, you don’t need to take the effort of timing the market, and a disciplined investment plan takes emotional decision-making out of the equation.

Here’s an example of why SIPs make sense:

If you had set up a monthly $10 SIP for Bitcoin in the past year ($120 total), you would’ve made $138 compared to a return of $129 if you had made a lump-sum investment at the beginning of the year instead. That’s a 100% difference in gains!

This also goes to show that SIPs are best planned for a longer duration, generating exponential returns in the long run via the power of compounding.

Benefits of SIP in Cryptocurrency

SIPs make sense for every asset class, especially cryptocurrencies. Here’s why:

Navigate volatility in the market with ease with Dollar-Cost Averaging

It’s a well-documented fact that the crypto market is massively volatile. Now, this means that you could potentially become a millionaire overnight, but unless you’ve got all the luck in the world and a massive disposable income, the chances of that happening are less than one in a million.

So the ideal way to build wealth for a majority of investors becomes long-term investing via SIPs. Now, SIPs take advantage of a concept known as Dollar-Cost Averaging (DCA). DCA is a strategy that helps prepare for market volatility, where you invest a fixed amount regularly, irrespective of price movement. This way, you don’t engage in speculation but rather focus on disciplined investment. And over time, ideally, you will lower your average purchase price.

This is better explained with an example:

As illustrated here, with DCA, you automatically buy the dip without having to worry about timing your purchase. Additionally, you still accumulate the asset at nominal volumes when prices are higher, setting you up for higher potential returns when prices rally dramatically during bull runs.

You don’t need to time the market

With the dramatic price movements in the crypto market on a daily basis, timing the market becomes a pain for any investor. And with your busy schedule, keeping up all the latest updates and trends becomes virtually impossible.

But when you invest through a SIP, you save yourself a lot of time and effort, not to mention unnecessary stress (as if you didn’t have enough of it already). With SIPs, you can set up your investment and forget about it till you plan to withdraw.

And if there are any major updates that make you want to modify your SIP, crypto platforms like Mudrex offer a flexible SIP that allows you to modify it whenever you need to.

Compounding Returns

Albert Einstein once said “Compound interest is the eighth wonder of the world.”

And SIPs ensure that you leverage the power of compounding when you invest long-term. When you invest through an SIP in cryptocurrency, your investments grow exponentially as you continue to add to the pile and they continue to generate returns.

However, keep in mind that this only applies if you continue to invest without withdrawing the profits. Building wealth requires patience, and if you withdraw early, you miss out on the chance to take advantage of compounding returns.

For example, imagine you invest $100 monthly in an SIP for a year and you receive 10% returns on your investment of $1200, i.e., $120. Now, say you choose NOT to withdraw the profit and add to the accrued amount of $1320 from the past year. If you make 10% returns on your investment again, you end up with $2520 compared to $2400 if you had ended up withdrawing your profit. Voila! The magic of compounding.

Builds a disciplined approach

One crucial quality that every successful investor possesses is discipline. SIP encourages disciplined investing by committing to regular, fixed investments at predefined intervals. And since your investment amount and periods are already defined, this helps you to avoid making emotion-fuelled decisions in response to market movements.

Low barriers to entry

A major misconception among beginners is that you need a massive capital to start investing. But SIPs allow investors to start with smaller amounts and gradually build their portfolios, making it more accessible for those with limited initial funds. And on investment platforms such as Mudrex, you can start with as low as $1.

So even if you cannot afford to buy 1 Bitcoin when you start out, disciplined investing practices can help you build up to it gradually. Remember, the secret ingredient to building wealth is discipline and long-term vision.

Reduces impulsive decision-making

Emotional decision-making can be a major disadvantage in the crypto market. FOMO makes investors buy large volumes of an asset- a common pitfall. However, SIPs help you avoid that.

The structured, scheduled investments of an SIP promote a more calculated approach, reducing the likelihood of impulsive trading decisions.

How to get started with a sip in cryptocurrency?

To start setting up an SIP in cryptocurrencies, follow the guidelines below:

1. Evaluate the coin carefully on specific parameters

Thoroughly research the cryptocurrency you’d like to invest in- study its past performance and how it fares during market volatility. Evaluate the adoption of the project so far and its growth trajectory since launch. Of course, don’t forget to check out its roadmap for the future so you know exactly how it expects to scale up. Also, take a look at long-term forecasts- these might not be entirely accurate, but they can give you an idea of what to expect in the long run.

However, among the thousands of cryptocurrencies in the market, it might get a bit overwhelming to research from scratch and choose one. So if you’re unable to choose a coin, check out products such as Coin Sets on Mudrex. These are crypto baskets based on the concept of index funds. To keep up with the market, these Coin Sets are rebalanced periodically by experts according to predefined rules, saving you a bunch of time and effort.

2. Choosing the right platform

When it comes to investing in crypto, choosing the right platform is just as important as choosing the right assets.

First, research the platform’s founders- their credentials and track record. You can check out user reviews of the platform as well to help you make your decision. And of course, ensure the platform is fully compliant with regulations in your region.

Next, ensure the platform has good security measures to protect your investments. Finally, determine if the platform allows you to set up automatic SIPs or if you will need to do it manually.

Here’s something to make your search easier- Mudrex is a crypto investment platform that is fully compliant with Indian as well as EU regulations, is secured by bank-grade encryption solutions, and offers you automated crypto SIPs.

Set up your SIP

To begin your crypto SIP, create an account on the platform you choose and complete the registration procedure. Then, link a bank account to add funds and set up the SIP into a coin or Coin Set of your choice.

On Mudrex, setting up an SIP is as easy as 1-2-3.

Select the cryptocurrency of your choice, and click on “Invest Now”. On the pop-up that follows, choose “Recurring” as your preferred investment type.

On the next screen, enter the amount you choose to invest on a recurring basis, select the frequency you wish to invest in, and finally, choose the date on which you want the amount to be invested every month.

A pop-up will appear, showing you a breakdown of your SIP. Click on Continue to complete your investment and set up your SIP! That’s it, you’re all done!

Conclusion

While setting up a crypto SIP, you can invest in Bitcoin, Ethereum, or any of the other altcoins. Most top cryptocurrencies have unique characteristics that set them apart from each other. To assess the long-term viability of a cryptocurrency, you can seek information about the technology, the use case, and the community built around the coin.

And if picking and choosing individual coins is too much of a hassle for you, you can always set up an SIP in Mudrex’s Coin Sets, index-fund-based crypto baskets created based on popular crypto themes. These Coin Sets are balanced periodically by experts in the industry. Additionally, Coin Set SIPs are automated, allowing you to set them up and return to them only when you want to withdraw your capital.

So start your crypto investment journey with a crypto SIP today!