Why Dollar-Cost Averaging Into Bitcoin Is ​​the Best Strategy The Motley Fool

Settembre 2, 2022 By Paolo Micciulla 0

dollar cost average

Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by Crypto.com to invest, buy, or sell any coins, tokens, or other crypto assets. Returns on the buying and selling of crypto assets may be subject to tax, including capital gains tax, in your jurisdiction. This depends on factors like your investing horizon and financial goals. Ideally a dollar-cost averaging strategy is something you can set and forget, without having to constantly monitor your portfolio. But true dollar-cost averaging typically happens over a lengthy period of time, typically at least 6-12 GALA months. After all, you can’t really average something out with only a few data points.


It can ensure that you’re alcost averaging cryptoy in the market and ready to buy when events send prices higher. For those wanting to explore timing the market, our University article How to Read Crypto Charts — A Beginner’s Guide is an intro to technical analysis. Instead of swinging for the fences, strive to build your portfolio incrementally. Investing in smaller amounts over time means that you’ll buy both when the price is high and when the price is low. The complexities of deciding what to invest in, when to double down, and when to hold cash are often amplified by crypto’s volatility.

Learn more about DCA

It takes emotion out of your investing and prevents you from potentially damaging your portfolio’s returns. Full BioCierra Murry is an expert in banking, credit cards, investing, loans, mortgages, and real estate. Despite the fact that you invest in a relatively safe way with dollar-cost averaging, you still have no guarantee of a positive return. That’s why you should always keep in mind that you can also lose your investment and never invest with money you can’t afford to lose. This feature is available for all users on the Crypto.com Exchange platform. For a step-by-step guide on how to set up your DCA Trading Bot, please refer to our Help Centre article.


By https://www.beaxy.com/ into a position, an investor may be less likely to cling to a single price anchor, making it easier to buy and sell according to a predetermined plan. Dollar cost averaging may also helpprevent your emotions from undermining your portfolio. When you invest a large sum of money in a single trade, for example, you’re more likely to feel regret if that trade turns out to be poorly timed. Behaviorial economists note that most people are inherently loss-averse—they tend to react more strongly to losses than to gains. But with dollar cost averaging, you’re investing smaller sums of money over time, making it easier to stomach a poorly timed investment. Problem two is that you might not have €3,000 to invest in one go.

Dollar cost averaging in the crypto market

Now that El Salvador is buying Bitcoin at a price below $20,000, this average cost will continue to decline over time until Bitcoin regains previous all-time highs. While DCA has potential advantages, new crypto investors must understand what DCA is and whether it suits their trading style. A proper understanding of DCA can help investors make smart decisions when buying cryptocurrencies. The asset price will often go up and down, so you may get fewer tokens for your money on some occasions. However, over time this will even out and the average cost per token will often work out more favorably than if you were to try to time your trades.

That would have resulted in a purchase of 45.45 shares ($500/$11). Joe decides to allocate 10% or $100 of his pay to his employer’s plan every pay period. Dollar-cost averaging may be especially useful to beginning investors who don’t yet have the experience or expertise to judge the most opportune moments to buy.

Where will you make your buys?

Despite the many investor uncertainties and anxieties, the good news is that you can reduce the impact of the market and become less susceptible to fluctuations by sticking to a strategy. While there are several investment strategies, many crypto investors are beginning to see benefits from one in particular, dollar-cost averaging . Dollar-cost averaging is an investment strategy in which the intention is to minimize the impact of volatility when investing or purchasing a large block of a financial asset or instrument.

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.

This is based on the idea that the longer your assets are in the market, the better your returns are in the long run. It may be wiser to divide your saved money into 10 smaller monthly investments of $1,000 each. Although this technique does not necessarily ensure a better return on investment, it would definitely mitigate the risk of short and medium-term market conditions. Some of these investments would most likely be made in uptrends, while others would be made in downtrends. However, it is still best to utilize technical analysis and fundamental analysis to ensure you do not start dollar-cost-averaging at the beginning of a long-term downtrend.

How do you calculate the dollar-cost average?

Dollar-cost averaging allows buyers to get the best average price on an asset over a long period of time. Using widely available websites, you can see how any dollar-cost averaging strategy for Bitcoin would have played out over any specific time interval. On many sites, you can adjust parameters such as how much you are investing, the regularity of your investment, and the time frame of your dollar-cost averaging strategy. The average price is so high because El Salvador began buying Bitcoin in September 2021, just about the time Bitcoin was hitting all-time highs.

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Generally speaking, however, an immediate cost averaging crypto can outperform because it gains in value while a DCA investment is waiting for the next scheduled buy. From your account overview screen, click on settings and then recurring deposits. Choose a funding source for your trade, then choose an amount for the trade and a cryptocurrency you want to buy.

So is Now a Good Time to Dollar Cost Average into Crypto?

I’m not worried about the 40% drops in Bitcoin because this is ultimately an opportunity to get a better price. I can let my bot that automatically buys Bitcoin every day do all the work, while I get to enjoy my free time and make headway in my career stress-free. Rather than trying to change my emotions, I’ve decided to negotiate with my psyche. I buy $10 worth of Bitcoin every day, so my mind is pleased that I’ve gone to bed with more Bitcoin than I woke up with. From a budgeting perspective, I know that I need at least $300 in my exchange account at the start of the month.

investing $

The DCA method gives beginning investors the opportunity to invest in a similar way as experienced investors, as long as the method is executed well. Even for investors who have little knowledge or no time, this method can be very useful. As long as you make a plan in advance and stick to it, you can meet your financial goals. DCA is defined as the process of allocating a fixed amount of money at a regular interval to purchase an asset. “Mooning.” If the asset you’re investing in never goes down, you may have been better off just buying all at once.

Although investors can use DCA to buy any asset class, this straightforward technique is incredibly influential in the volatile crypto market. Indeed, DCA is so common in crypto that many centralized exchanges now offer functionality specific to enabling DCA. Dollar cost averaging offers several benefits, bringing discipline to your investments and smoothing market volatility. But one of the biggest advantages is seen during market instability.

What’s more, you can eliminate some biases from your decision-making. Once you commit to dollar-cost averaging, the strategy will make the decisions for you. Investors should seriously consider committing to the dollar-cost averaging approach as a means of investing in digital assets amid the macroeconomic uncertainty. The DCA strategy works well in conjunction with a forward-thinking approach. The longer the time horizon, the better this strategy will work. As long as the general direction of Bitcoin is up, time will take care of smoothing out the short-term losses.

It’s hard to come up with a lot of money to make a big crypto purchase. But you might never miss the 100 € to 200 € that you’ve set aside for portfolio-building with recurring purchases. You could pay for your retirement by taking your lunch to work two days a week instead of eating in a restaurant. Your portfolio will grow with little attention, effort, or inconvenience.

market timing

The obvious benefit is that it helps to reduce the negative impact on an investment caused by short-term volatility. By using the DCA strategy, you can take advantage of market fluctuations by lowering their average cost per asset without risking too much capital at any point in time. Market timing is not a pure science that many investors, even professional ones, can master. Investing a lump sum at the wrong time can be risky, which can adversely affect a portfolio’s value significantly. It is difficult to predict market swings; hence, the dollar-cost averaging strategy will provide a smoothening of the cost of purchase, which can benefit the investor.

Is Dollar Cost Averaging Good For Crypto?

Dollar cost averaging can benefit any type of investment by ensuring you’re adding to your position consistently and buying more when prices are lower.

BitPay offers crypto buys with no hidden fees and shows multiple offers to make sure you get the best rate. It could be a flat amount, a percentage of your paycheck, or something else. It’s important to choose an amount you can sustain and remember, only invest what you can afford to lose and what you do not need access to in the short term. When trying to “time the market”, constantly refreshing portfolios and reviewing price fluctuations can be time consuming, not to mention nearly impossible l to get right. Dollar cost averaging gives you this time back to focus on other areas of your life, particularly if you set up an automated recurring buy. As a result, when the market stabilizes, this evens out your average purchase price and you’ll benefit from having more bitcoin when you buy them at a low price.

  • For instance, you’ll have exposure to dips when they happen and don’t have to try to time them.
  • Instead, you should visit the eToro once you get notice of a successful recurring deposit to buy your preferred cryptocurrency.
  • The price of the coin always bounces around, like any asset, which means that each month, your €1,000 will buy a different number of coins.
  • Shane has been an active supporter of the movement towards decentralized finance since 2015.
  • The expectation with the constant dollar plan is that the price of an asset such as a cryptocurrency will increase in value in the long term.

Dollar-cost averaging Bitcoin can be beneficial as it allows you to obtain an average that will minimize the risk of buying too high in lumps. In addition, DCAing into stablecoins can help to smooth out the bumps in your investment journey. Overall, DCAing into cryptocurrencies can be a helpful way to invest if you are worried about market volatility. But above all, DCA could be especially useful in crypto trading given the market’s rampant volatility, where market timing is increasingly difficult. Remember, the main goal is to build wealth in the long run through systematic investments. You should be aware and prepared to potentially lose some or all of your money.