- What is Dollar-Cost Averaging in Crypto?
- Is Dollar-Cost Averaging A Good Crypto Strategy?
- What Do The Experts Say About Dollar-Cost Average (DCA) Investing?
- Explaining How Dollar-Cost Averaging Works In The Crypto Market
- Dollar-Cost Averaging vs Lump Sum Investing
- Dollar-Cost Averaging Weekly vs Monthly
- Dollar-Cost Averaging In A Bear Market For Maximum Opportunity
Dollar-cost averaging or DCA investing is a regular periodic payment into an investment. So you invest the same amount of money each week/month into a particular asset.
Dollar-cost averaging is one of the easiest ways to learn how to invest in cryptocurrency. Some of the most experienced investors in the world suggest dollar-cost averaging or DCA investing is one of the most effective methods for those looking to remove natural dips and price volatility that occur in the cryptocurrency markets.
Other investment strategies like Pick-A-Shovel investing in cryptocurrency ecosystems requires a little more experience within the markets.
What is Dollar-Cost Averaging in Crypto?
Dollar-cost averaging (DCA) in crypto is an investing method where the investor buys cryptocurrency periodically with equal instalments. Therefore increasing your exposure to the market but your minimising risk.
Essentially, you will buy your chosen cryptocurrency weekly, bi-weekly, monthly or so on regardless of the price. Your investment will be the same amount every time.
This means that your investment strategy does not suffer from short term volatility. The main aim of crypto dollar-cost averaging is to acquire more over time at a lower price point.
DCA investing is a great place to start for those new to the space who want learn how to buy Bitcoin. DCA investing into Bitcoin is the easiest and safest way to get involved in the space.
Example: If you bought $200 worth of Bitcoin every 2 weeks for 5 years (starting 5 years ago) you would have invested $26,200 and your investment return would be $246,611 (at the time of writing).
The cryptocurrency market cycles are very unpredictable, unless you’re a technical analysis wizard (very few are). By dollar-cost averaging into crypto you remove the risk of trying to time the market because whether the price has surged or crashed you still take an entry and over time your purchase entry will average out.
Investing in cryptocurrency in the UK using this method is especially great for investors who choose cryptocurrency projects based on fundamentals. Blockchain technology is being adopted more each day so the core fundamental projects will appreciate in price over the long-term.
Is Dollar-Cost Averaging A Good Crypto Strategy?
Yes, there are many benefits to undertaking a dollar-cost averaging investment strategy. Beginners and those who adopt a long-term cryptocurrency investment strategy would usually adopt DCA the most. However, seasoned crypto investors and traders also couple this strategy alongside their trading because it allows them to accumulate digital assets and take some risk off the table.
Below are some of the main benefits that make dollar-cost averaging a good crypto strategy:
- You don’t have to try and time the market. Crypto is very unpredictable and some of the best returns are made over the long-term through investing in strong fundamentals. Dollar-cost averaging allows you to invest periodically to increase your potential returns over time.
- You don’t chase ‘pumps’ or green candles. Basically this means you won’t FOMO into ultra-hyped cryptocurrencies. This is a very bad idea and can cost you a lot of money. DCA removes the emotion of investing.
- You may take advantage of market dips therefore allowing you to lower your average purchase price. Your token value will be high and your purchase price will be lower, creating more profits.
- Dollar-cost averaging is a long-term strategy. Being in this mindset will create long-term benefits. Overall, the long-term investors win the race.
This slow and steady method removes emotion and lowers your risk overall. On the other side of the coin you may enjoy the emotional roller-coaster of trading and investing, so there’s nothing stopping you adding another crypto investing strategy to your toolbox.
The price of cryptocurrency is more likely to increase over time. If you buy all your tokens at one price and the market drops (very likely) you are now over exposed and are underwater on your investment.
What Do The Experts Say About Dollar-Cost Average (DCA) Investing?
It really depends on how much time you have to dedicate to your investment portfolio and how much time you want to spend researching crypto. However, this is one of the best investing strategies for beginners as it reduces risk and essentially takes the emotion out the game.
Using the ‘smart money’ as a bit of guidance you can get a clearer picture of how to navigate the markets.
Raoul Pal, Legendary global macro investor and former Goldman Sachs Portfolio Manager.
Raoul Pal has given several interviews recommending DCA investing using the likes of Paypal. It’s simple, no-hassle and easy to set up.
Will Clemente, On-Chain Analyst at Blockware Solutions says:
Will Clemente provides in-depth analysis during market dips. Here he finds that long-term Bitcoin holders continue to ‘stack sats’ in other words they continue buying suggesting they are dollar-cost averaging.
Michael Saylor, Chief of Microstrategy & Owner of $Billions of Bitcoin says:
Michael Saylor tweets his Bitcoin purchases like clockwork. When the market dips Saylor buys and when the market is high Saylor buys. Classic DCA investing method.
Explaining How Dollar-Cost Averaging Works In The Crypto Market
We now understand that dollar-cost averaging in crypto is simply investing in a digital asset periodically over the long-term rather than trying to get the perfect entry and time the market.
Let’s discuss how dollar-cost averaging works in practice, here’s how to get started:
- Research which cryptocurrency you want to invest in over the long-term. Think about fundamentals, the possible narrative, will it get mass adoption, is the tech solving a problem and so on. You can view our do your own crypto research guide for a better idea.
- Work out the amount of money you wish to invest, whether that be a lump sum split into intervals like £2000 over 6 months or just how much you want to invest.
- Decide how often you want to set up your intervals. For example, weekly/bi-weekly/monthly and so on.
- Set up a bank transfer to your chosen crypto investing platform or exchange app.
- Decide on a target amount of time you want to invest for or a price target for your portfolio so you realise your profits.
- Track your investments in a portfolio tracker app.
Dollar-Cost Averaging vs Lump Sum Investing
The main difference between dollar-cost averaging and lump sum investing is that with dollar-cost averaging you don’t have to time the market perfectly. You invest small amounts periodically. Lump sum investing, however, is when you invest all the money you have at that time all at once therefore fixing your purchase price.
Averaging into an investment over time lowers your potential risk and purchase price and increases portfolio value.
Lump sum investing means you have to time the very volatile crypto market and by doing this you allow your emotions and outside stimulus influence your investment. Also, if the price of your tokens drop you automatically lose money, whereas if you have dollar-cost averaged into your investment, price fluctuations don’t affect you in the long run because you have taken advantage of cheap token prices as the market ebbs and flows and your overall token purchase price is lower.
Dollar-Cost Averaging Weekly vs Monthly
The main difference between dollar-cost averaging weekly vs monthly is the type of investor you are. If you’re a long-term investor your investing intervals don’t matter anyway. However, investing weekly would allow your returns to compound faster and would therefore suit short-term investors.
With the majority of people being paid in the last week of the month more money is deployed into the online economy from the 25th of the month onwards.
Typically, online buying behaviour is significantly affected by payday. For example, research by SaleCycle found online sales volume increases from the 25th of each month with the 26th of each month of the year being the most popular for online sales.
Taking this into account the majority of cryptocurrency investors will employ a long-term dollar-cost average strategy to coincide with their paydays.
Dollar-Cost Averaging In A Bear Market For Maximum Opportunity
A ‘bear market’ or ‘crypto winter’ is a sustained period of time when there are major declines and low price action from previous all-time highs.
This is arguably the best and profitable time to dollar-cost average into your investments especially if you’re altcoin investing. Essentially you are ‘buying the dip’. The idea is that over the course of the bear market (low prices) you are able to accumulate solid cryptocurrency projects at low prices.
By dollar-cost averaging during a bear market you are able to buy more tokens so when the bull market returns (price goes up) you will find you are in a very nice profit.
It is very difficult to know when a price has hit rock bottom so using dollar-cost averaging you are able to buy small amounts over time instead of buying a lump sum and then watching the price go down further.