How to Dollar Cost Average (DCA)
How To Dollar Cost Average (DCA) With Crypto
DCA is a less demanding and time-consuming tool for investing slowly and consistently. In other words, it will prevent any negative effect on an investment caused by short-term market instability. The goal is to take advantage of the downturns without compromising too much capital at once.
How DCA Works
With dollar-cost averaging, first, you will determine the total quantity you are expecting to invest, along with your preferred investment product(s) — stocks, crypto, commodities, etc. Afterward, instead of investing a significant amount of money all at once, you will fund it in smaller equal installments over a specific period.
Once set up, your profit will happen automatically, regardless of asset price or activity in the market. If the cost of an investment drops when you are dollar-cost averaging, you will probably get some earnings if the price moves back up.
On the other hand, committing to dollar-cost averaging means that, sometimes, you’ll be investing when the market or a particular asset has lowered in value. Suppose you choose to buy when the others are selling; a DCA strategy can potentially help you obtain the benefits of buying low and selling high, especially if you’re not a professional market watcher.
How do you use DCA in crypto?
It is essential to know that cryptocurrencies can be pretty volatile, even more than stocks. That being said, using DCA for crypto can be a suitable method. Summing up, this strategy will establish an order for a regular acquisition on a cryptocurrency exchange.
Even if you just entered the crypto market, you comprehend that you can generate a potentially greater profit from buying during dips and selling at the top. But, this approach also comes with greater risks and instability.
There’s overall unanimity that DCA is a safer primary method. It has lower risks and lower rewards but still offers the chance of profiting from market swings. So, if you want a relatively safe form of benefiting from crypto’s volatility, a dollar-cost averaging strategy is worth considering. You can also use this methodology for Ethereum, Binance coin, Ripple, etc.
For example, suppose you choose to invest a fixed amount of $150. If you spend $150 to buy a fraction of Bitcoin in your first month and keep investing that same number monthly; you will notice that it will be possible to purchase more Bitcoins during some months because of price volatility.
Another essential factor is to dedicate some time to research and analyze the proper asset to invest in. The Dollar-cost averaging only works when you keep funding one particular crypto.