What is dollar-cost averaging DCA? Crypto Trading

recurring deposits

A cost averaging crypto strategy allows you to capitalize on market swoons by purchasing more of your chosen cryptocurrency when prices are lower. Investors who use a dollar-cost averaging strategy will generally lower their cost basis in an investment over time. The lower cost basis will lead to less of a loss on investments that decline in price and generate greater gains on investments that increase in price. The expectation with the DCA strategy is that the price of an underlying asset will increase over time. By buying periodically, you invest when the price is high or low.

Is DCA a good strategy?

DCA is a good strategy for investors with lower risk tolerance. If you have a lump sum of money to invest and you put it into the market all at once, then you run the risk of buying at a peak, which can be unsettling if prices fall. The potential for this price drop is called a timing risk.

Whenever you put a single lump-sum of money into an investment, the value of your holdings is pegged exclusively to the ups and downs of its share price .. By employing a dollar-cost averaging strategy, however, you can flatten out some of the price volatility over time by making additional purchases during market downturns. As of 2022, we’re in the midst of another crypto winter which means asset prices are depressed. Dollar-cost averaging strategy can be especially lucrative during these market conditions.

How to invest in crypto with dollar cost averaging

Instead of worrying about daily moves upward or downward, investors continue to buy on a regular schedule. For those who don’t mind actively managing the crypto market, they can manually DCA into cryptos when they notice favorable opportunities. Instead of buying cryptos at pre-set intervals, some DCA investors may wait for a significant correction to invest more of their cash.

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In some places, crypto profits from short-term gains get taxed less favorably than long-term gains, playing a significant role in total returns. A long-term approach shields your funds from taxes, and if you wait until you retire before selling your assets you’ll pay even less tax. Dollar cost averaging is popular in crypto given how quickly prices go up and down in a short period of time due to volatility.

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However, according to some skeptics, dollar-cost averaging can make some investors lose out on gains during bull markets. With that said, losing out on some gains isn’t the end of the world – dollar-cost averaging still can be a convenient investment strategy for many. Dollar-cost averaging is a redeemed strategy for entering into a position while minimizing the effects of volatility on the investment. It involves dividing up the investment into smaller chunks and buying at regular intervals. According to some, however, it’ll actually make investors lose out on gains when the market is performing well. If the market is in a sustained bull trend, the assumption can be made that those who invest earlier will get better results.

This enables you to grow your holdings, and can lower your overall cost-basis during dips. Dollar cost averaging is a simple and powerful investing strategy. Nevertheless, there is general agreement that DCA is a safer general investing strategy than lump-sum purchasing and selling. However, holding digital assets can be risky business, particularly during market swings, but there the current crypto winter is still seen as a buyer’s market by many.

If you’re planning to use it for long-term investing and wonder what interval for buying makes sense, consider applying some of every paycheck to the regular purchases. After all, you invest in a way that suits your financial goals and that you feel comfortable with. For many people, the dollar cost average method is the way to invest their wealth. This is because through this investment method, you make clear agreements that feel manageable for many people. Spreading out purchases evenly instead of making a lump-sum buy can reduce the chance of major financial loss, which is good not only for your wallet but also your peace of mind. DCA is an especially popular strategy for crypto users who want to remain engaged with an asset during bear markets.

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With funding fees of up to 3.99%, it’s cheaper to fund deposits directly from your bank rather than use credit or debit cards. Uphold does not charge a trading fee, but instead uses a spread fee, which varies by crypto type. In the background, you’ll pay about 1% more for the asset you’re purchasing. Recurring buys, sometimes called auto-buy, is just a plain English term for dollar cost averaging. For instance, to build a position in Bitcoin, you can set up an automatic purchase amount that fits your budget, putting your Bitcoin purchases on autopilot. So, the strategy cannot protect investors against the risk of declining market prices.

This way, we’re going to spread out our entry to a period of about three months. Bear in mind that the performance of the Dow is tied to a real-world economy. When it comes to picking the asset, some crypto enthusiasts believe that Bitcoin is still the only viable cryptocurrency for the DCA strategy. This is because they believe that Bitcoin is likely the only crypto asset thus far which has potentially strong longevity due to its fundamental use case.


However, you’ll pay a 1% spread on crypto purchases, adding to your cost. By using dollar-cost averaging, though, he was able to take advantage of several price drops despite the fact that the share price increased to over $11. He ended up with more shares (47.71) at NEAR a lower average price ($10.48). The table below shows the half of Joe’s $100 contributions that went to the S&P 500 index fund over 10 pay periods.

The importance of crypto diversification

Price drops allow DCA investors to purchase more Bitcoin for the same dollar amount. Another advantage to dollar-cost averaging is that you end up paying less for an investment over the long term because you are buying when prices are both rising and falling. You can see this immediately with El Salvador and its Bitcoin strategy. Heading into its new dollar-cost averaging strategy, for example, El Salvador had purchased a total of 2,381 Bitcoins at an average price of $43,357. Dollar-cost averaging is a technique where long-term investors consistently buy an asset they like with small amounts of money repeatedly at a fixed cadence. Instead of going “all-in” on a stock, ETF (exchange-traded fund), or cryptocurrency, DCA investors will “pepper in” a bit of their capital at scheduled intervals.

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On the other hand, investing in crypto through DCA for older investors nearing retirement is probably not the best bet. The DCA strategy could be particularly beneficial for crypto investors who lack the experience and knowledge to identify the best moments to buy. Additionally, it’s also a proven method for long-term investors who do not want to check prices every couple of hours. An investor will usually set aside money they intend to dollar-cost average into a crypto and set a schedule to make small purchases. Part of what makes cost averaging work is that you accumulate more assets when prices are low.

This is because they know that it is very difficult to estimate the top or the bottom of the price. Only afterward can you state what the top or the bottom has been. Besides how much and how often you are going to invest, it’s also important to decide how you want to do this. By choosing a platform where you can invest automatically, you can effortlessly use the DCA method. This way, you can build up your crypto portfolio without looking back.


People who have periodically purchased Bitcoin in recent GALA years have a very low average purchase price. The crypto market has only been around for a few years, and many people expect a lot from this market in the future. Nevertheless, it is not guaranteed that DCA in Bitcoin will now provide the same return. Therefore, do your own research well before you start investing.

Dollar-cost averaging absolutely won’t guarantee a successful https://www.beaxy.com/ – other factors must be taken into consideration as well. Shane has been an active supporter of the movement towards decentralized finance since 2015. He has written hundreds of articles related to developments surrounding digital securities – the integration of traditional financial securities and distributed ledger technology .

  • In fact, many CEXs allow customers to set a DCA schedule for a hands-off investment strategy.
  • The goal is to reduce your exposure to market volatility and help lower your purchase costs and increase your returns.
  • If the price rises continuously, those using dollar-cost averaging end up buying fewer shares.
  • In this article, find out more on how DCA works, the pros and cons, and how to easily set it up.

However, experienced cost averaging crypto traders do not invest a fixed amount on certain days of the month but use the corrections as a buying signal. This way of dollar-cost averaging is a lot more flexible but also involves more emotions. If you want to use this strategy, for example, it is important that you do not suffer from FOMO, or fear of missing out. Many people think that dollar-cost averaging is not suitable for making large profits, but nothing could be further from the truth.

What are the 2 drawbacks to dollar-cost averaging?

The cons of dollar-cost averaging include missing out on higher returns over the long term and not being a solution to all other investing risks.

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