This post is a guide showing the easiest safest way to invest in bitcoin in South Africa, which is called Dollar Cost Averaging and involves just accumulating bitcoin. It is important to understand that bitcoin is considered an extremely volatile digital asset, and should be treated as a high risk investment. Depending on the size of your position, there is the potential for making or losing a lot of money. The key is to be financially responsible, and to reduce the risk of losing value where possible.
Please don’t forget to read our original post on investing in bitcoin found here: (How to invest in bitcoin in South Africa)
The golden rule of investing, is to never invest in anything that you do not understand.
Before you consider investing in bitcoin, it is important to understand what it is you are investing in, and how it works. We highly recommend first learning about bitcoin on our website, where we have lots of articles and blog posts about bitcoin. (When you are ready to buy bitcoin, please read our page on where to buy bitcoin in South Africa)
With bitcoin there is no monthly interest or income
Bitcoin is a digital currency, it is not a company or stock. As such, when investing in bitcoin, we treat it like a digital asset, with the most basic investment strategy being to simply buy bitcoin, and store it securely.
When you buy bitcoin as an investment, it is similar to investing in other assets such as gold or property. You don’t get any interest or monthly income from your investment. Just like you are not rewarded with more more gold or land every month from your investments, you are not rewarded with more bitcoin each month from your investment.
When you sell your bitcoin investment, you make a profit if it has appreciated in value. If you sell at a lower price than what you bought it for, you will obviously make a loss, and not a profit. If you never want to lose money, all you need to do is never sell for less than you paid.
In the last 5 years, bitcoin is the best performing asset class in the world bar none. Better than stocks, bonds, commodities, equities, hedge funds, private equity, better than everything. Bitcoin keeps getting higher highs and every low is higher than the previous low.
Historical price of bitcoin in USD
Active and Passive trading
Your bitcoin that you purchase as an investment will appreciate and depreciate in value based on the current market price of bitcoin at any given time. Short term, the price of bitcoin is extremely volatile and so the value of your investment is volatile along with it. Investing in bitcoin should therefore be considered a long term investment as the longer you have bitcoin, the more likely it is that it will appreciate in value.
Investments are meant to be long term, and not measured in value monthly or quarterly, but in years and decades.
Most active traders who trade daily, lose money. Unless you have knowledge about and training in trading, as well as an understanding of the markets, don’t put your funds at risk. If you want to be successful at trading bitcoin, you need to constantly be monitoring the markets, and you might drive yourself crazy obsessing about the price 24hours a day.
By extending your timeline and using a long term strategy instead, you are far more likely to make a large profit with far less risk of losing funds. You do not have to watch the markets all the time, and you can relax more, instead of stressing yourself out at the tiniest price movement. Passive trading involves buying and holding bitcoin for the long term, as well as regularly buying more bitcoin, so that you can accumulate more over time. By constantly accumulating, you can grow your bitcoin balance, so that while the price is appreciating long term, your total value increases. By doing this, you can calculate an average price for your bitcoin investment over time.
Getting an average price for bitcoin – Dollar Cost Averaging
If you only make a single once off purchase of bitcoin when you invest, you know exactly what your purchase price was for your investment, and it is easy to see when you would be in profit.
When you are a passive trader, and are regularly accumulating bitcoin, you will get an average price for your bitcoin. This strategy is also called Dollar-Cost Averaging (DCA), and many traders do this in order grow their holdings of bitcoin, and to protect themselves from fluctuations in price and downside risk. Ideally you would spend the same amount each month, regardless of the price.
For example, lets say you purchase R1000 worth of bitcoin at the end of January, February and March. Your total cost in Rand would be R3000. To get an average price you paid for bitcoin, you can add up the price of bitcoin at each time of purchase, and then divide it by the number of purchases you have made.
By using this strategy, you can buy a set amount each month regardless of price. Some months you will get more, some months you might get less, but over time, you will get a good average price while growing your bitcoin stash.
Is bitcoin in a downward trend? The lower bitcoin goes in price, the better the upside potential is, and the closer it is getting to the bottom.
How much money could you have made so far?
Would you like to know how much you would have made if you had already been investing a small amount in bitcoin each month?
You can use this awesome website (https://dcabtc.com) to calculate how much your would have made if you were doing Dollar Cost Averaging already. It is a great exercise to visit the website and see how much you could have made if you had started DCA already a couple of years ago.
Buying $17 worth of Bitcoin every month for 4 years, starting 4 years ago would have turned a total $816 invested over 4 years into $7,707 which is +844% increase in value.
The chart below shows the money invested in Green, and the bitcoin value if you had spend that same money on bitcoin in Yellow:
When you compare the value you would have made by Dollar Cost Averaging over the last few years, to that of the value you would have if you had kept in that same money in the bank, or some sort of investment vehicle, there is nothing that comes close to bitcoin in gains.
Buy the dip
Often you will hear people saying that they are going to ‘buy the dip’, if the price of bitcoin has suddenly dropped. If the price of bitcoin drops suddenly, then passive traders who are Dollar-Cost Averaging their purchases, might take advantage of a sudden drop in price to lower their average cost.
With bitcoins volatility and ‘boom and bust’ cycles, many passive traders with long term strategy see a sudden price crash as an amazing opportunity to buy at a lower price, which will drop their average bitcoin cost price. While other traders panic sell at the first sign of a dip in price, a passive trader will simply be getting more bitcoin for their money.
If you have previously bought bitcoin at a high price, and you dont want to sell, you could buy a little more at the low price now, and bring your average price lower. This method brings down your ‘break even’ price, where anytime the price goes higher than that, you are in profit if you sell.
Don’t invest more than you can afford to lose
The best way that you can safely make money long term with bitcoin, is to regularly buy with money that you would otherwise be putting away to save. This means that you wont be using money that is essential to your living expenses, but money that you would be saving if you were not buying bitcoin with it.
If for example you are able to save R2000 per month, then consider using a percentage of that for your bitcoin investment plan, eg 50% of what you would normally save is R1000 that you put into bitcoin, and the other R1000 you put into your regular savings plan.
How to safely store your bitcoin investment
Once you have bought your bitcoin on a bitcoin exchange, it is wise to withdraw it from the exchange and store it securely offline. Do not store your bitcoin investment on an exchange, it is better to withdraw your bitcoin to your own secure wallet. Please read : why its a bad idea to store your bitcoin on an exchange.
We highly recommend that you invest in a secure bitcoin hardware wallet to store your bitcoin offline. You can purchase these hardware wallets directly from the manufacturers at the Trezor and Ledger official websites.
To find places where you can buy bitcoin in South Africa, you can see a list here:
To see a list of bitcoin wallets you can use to store your bitcoin, you can read this page: