DCA Crypto – What it is and how to apply?

There are many ways people apply different techniques and strategies when it comes to investing. Would you know what dollar-cost averaging is and how it works if we asked you? Some people call it DCA; others call it DAA, but no matter what you call it, the concept behind this investment strategy has proven very useful over time.

In fact, according to MarketWatch, dollar-cost averaging can be so beneficial that if you’d done this right before the stock market crash of 2008, you would have made more money in that year than in the previous 5 years combined! If that’s not enough to give this investing strategy a shot, what is?

What is Dollar Cost Averaging (DCA)?

Dollar Cost Averaging is an investment technique to spread the purchases of a certain investment project over time regardless of fluctuations in prices. which means that a certain amount of money is put into an investment, for instance each month, instead of putting all of it at once. These investments could be the typical stocks and bonds but the technique is also much applied in crypto, for instance by buying $200 Bitcoin on a monthly basis. Investors who choose the strategy of buying fixed dollar amounts of a particular investment on a regular schedule, regardless of the share price, can maximize their returns with the fluctuations in the share price. This technique allows investors to take advantage of fluctuations in prices.

Often considered a passive investing strategy, DCA tends to reduce volatility in returns because more shares are purchased when prices are low, and fewer shares are bought when prices are high. The goal of dollar-cost averaging is generally to lower average share prices while also building up a larger position over time.

What is DCA in crypto?

The DCA strategy is also used for investing in cryptocurrency in a similar fashion as for regular stocks or ETFs. DCA ensures that you invest in a coin at multiple points in time, and therefore dealing better with the high volatility.  While DCA may not yield great returns directly, it is an excellent way to prevent yourself from buying high and selling low. In crypto, an important factor to keep in mind is which projects to invest in and apply dollar cost averaging. Generally the coins with a higher marketcap are more stable and less risky.

Why should you do DCA with cryptocurrencies?

With an unpredictable market, you could end up holding a pile of money that continues to lose value. You’re better off spreading your money around. Studies show that DCA investors see better returns than those who don’t and that their portfolios are more likely to last through bull and bear markets alike.

Here’s how it works: when prices fall, you can take advantage of lower prices by investing more. Then, when prices rise again, you continue adding funds as usual until your portfolio reaches its target amount.

5 Benefits of Dollar-Cost Averaging Crypto

DCA can be beneficial for cryptocurrency investors as it allows you to avoid timing your buys incorrectly and accidentally buying high and selling low (though this could happen at any time). Most people are hesitant to make long-term investments in crypto due to its volatility, and DCA can help calm some of those nerves when it comes to investing large amounts at once. Here are 5 benefits of dollar-cost averaging crypto.

Better Market Predictions

When investing in a volatile market, dollar-cost averaging reduces your risk. Cryptocurrencies are a particularly risky investment—the total market cap has gone up significantly over the past few years, but there have been plenty of dips. Because crypto markets tend to rise and fall quickly, buying in at regular intervals (e.g., monthly) rather than all at once makes sense.

Less Emotional Reaction to Price Changes

If you buy $10 worth of a cryptocurrency on Monday, then it jumps to $11 on Tuesday, and you might be inclined to sell your holdings—especially if it’s been a while since you purchased them. But by dollar-cost averaging into new purchases, that reaction becomes less likely, and price volatility has less impact on your long-term portfolio value.

Reduces Transaction Fees

With traditional exchanges, you pay a fixed transaction fee for each trade. If you’re buying $100 worth of crypto and paying 5% in fees, that works out to $5. But if you buy $100 worth of crypto through dollar-cost averaging (DCA), you’ll pay 0.25% in fees—that means each trade only costs a quarter instead! That can add up to significant savings over time.

Lessens Volatility Risk

Dollar-cost averaging is a strategy that helps alleviate your risk from drastic price changes in cryptocurrencies. By investing a fixed amount of money at a set interval, you buy more coins when prices are low and fewer coins when prices are high. In other words, you average out your investment over time instead of betting it all on one day’s price action. So DCA can help to decrease volatility by averaging out cost basis over time instead of trying to predict volatile markets.

Lowest Cost per Unit Purchased

You get a better deal on each unit if you buy in bulk. When you dollar-cost average (DCA), you plan to invest a fixed amount of money regularly. Let’s say, for example, that you want to invest $200 into crypto every month. You can choose to do it all at once or DCA by spreading out your purchases over time—for example, by investing $33 per week over eight weeks.

Not All Currencies Are Good For DCA

When it comes to DCA, not all coins are created equal. Some popular options include Bitcoin, Ethereum, Bitcoin Cash, and Litecoin. As far as cryptocurrencies go, these are likely your best bet for DCA due to their high liquidity and solid value over time. 

It’s also worth noting that some exchanges have higher fees than others; choosing a trusted option with lower costs can save you money in the long run. For example, Coinbase charges between 1%–and 3% per transaction, depending on your country of residence. In contrast, Binance offers trading fees as low as 0.1%. 

Finding DCA Opportunities In the Market

If you have set yourself a goal of investing in cryptocurrencies, it can be difficult to know when is a good time to make a purchase. To help you decide, it’s worth talking about dollar-cost averaging (DCA) and its benefits in volatile markets. You have to do deep research, analyze crypto projects, and read their white papers (Link to Whitepaper article) to understand their future better. 

If you invest a single $100 every month, whether, on January 1st or December 31st, your average cost per unit will always be $100—and thus less than if you had bought all your units at once.

Consistency pays

When investing in cryptocurrency, you need to choose a target price at which you want to buy your desired cryptocurrency and then commit yourself to regularly buying a fixed amount of coins. 

Dollar-cost averaging is one technique that can help you do just that. By committing yourself to regularly buying a certain amount of cryptocurrency, you’ll help avoid getting caught up in emotionally-driven buying patterns. By doing so, you’ll also reduce some of your risks.

Wrapping Up

DCA in crypto is a popular strategy used by experienced investors. It’s much better than FOMOing and buying on highs or FUDing about market bottoms. The idea is to buy a fixed amount of cryptocurrency at regular intervals, regardless of its price. DCA has several benefits over traditional methods of buying: you’re less likely to make impulse buys when they’re wrong or miss out on reasonable prices in bear markets.