A Simple Guide to Dollar-Cost Averaging (DCA) & Buying Crypto
What Is Dollar-Cost Averaging?
Dollar-cost averaging (DCA) is a strategy for reducing the risk of purchasing a cryptocurrency with large price volatility. It works by investing a predetermined amount and spreading purchases at regular intervals, regardless of the asset price at each interval.
For example, instead of buying $10,000 of Bitcoin in one purchase today, one might spread the lump sum into buying $100 of Bitcoin weekly, regardless of the cost on the day. Sometimes you will be able to purchase more crypto, other times less. Regardless of the price, the same amount is used to purchase each time.
Over time, this method can lower the average purchase price per coin while still exposing you to market fluctuations.
It also means that you don’t need a lot of money to start investing this way.
Why is Dollar-Cost Averaging Useful in Crypto Investing?
This strategy is especially useful when you have a long-term focus for your investment portfolio, and you have crypto assets that are fundamentally solid value and you want to hold for the long term.
DCA is good for:
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- Removing the stress and difficulty of ‘timing the market.’
- Lowering your risk because you’re not investing at a single price point.
- Providing beginners with a helpful way to evaluate the market without ‘going all in’.
- Keep emotions out of the decision process since it’s a ‘set and forget’ investment strategy.
It gives investors a way to build savings and grow the wealth that they already have, while also introducing a good habit of regular investment savings that add up over time.
It’s important to note that DCA doesn’t eliminate the possibility of investment risk or loss if the crypto asset goes down indefinitely (not just with a bear cycle) or the project fails. DCA helps to reduce risk but can make it less likely to generate large profits (when compared to strategies of timing the market cycles or trading).
However, for time-conscious investors, it provides more options to buy at different prices without being bound by FUD (Fear, Uncertainty, Doubt) and FOMO (Fear Of Missing Out).
Crypto-Cost Averaging
There is a lot more volatility in the crypto market right now than there is in regular markets. As a result, digital assets appear to be even better suited to dollar-cost averaging than traditional stocks and funds.
The more severe the highs and lows, the more likely traders are to be influenced by and act on emotions. All the more incentive to consider a crypto-cost averaging strategy.
Consider the benefit and crypto portfolio you would have today if you had been investing $50 in Bitcoin every week for the past 5 years: You would have invested $13,050 but be holding $177,000 in Bitcoin today.
And, if you had been investing $50 in Ethereum every week for the past 5 years? You would have invested $13,050 but be holding $570,000 in Ethereum today.
Without spending any time trying to choose what time to buy!
Check out this calculator to see how much you may earn through long-term DCA with crypto.
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