What is Dollar-Cost Averaging (DCA)?
Dollar-cost averaging is the process of making set, regular purchases of Bitcoin (or any crypto) regardless of its current trading price. These purchases work as an effort to reduce the effect of market volatility on the cost of your Bitcoin. This is usually done by dividing the total investment amount across periodic purchases.
What are the benefits of Dollar-Cost Averaging?
- It takes the guesswork out of timing the market.
- It doesn’t require a sizeable upfront investment.
- It enforces buying smaller portions of Bitcoin, limiting your exposure to volatility.
- When the price is low, your dollar buys you more.
What are the disadvantages of Dollar-Cost Averaging?
- It takes time to build your desired Bitcoin position.
- It lowers your chance of buying at exact bottoms.
- When the price is high, your dollar buys you less.
A before DCA v after DCA scenario
Let’s say on the 1st January 2018 you bought $1,000 of Bitcoin.
The Bitcoin price at the time was $18,500 per coin, which means you now owned a total of 0.054 BTC.
Instead of investing your entire $1,000, you decided to DCA $5 every week into Bitcoin.
At the time of writing, at only an expenditure of $945, you would own a total of 0.078 BTC. That’s 44% more bitcoin.
Other examples of DCA’ing
This tried and tested strategy has been implemented by even the largest of corporations, including a 16,796 BTC purchase by MicroStrategy, where ~0.19 BTC was accumulated every 3 seconds to get the best average price.
This article shows examples of DCA’ing into the bear market following the 2017 bull run, and how the extra accumulation in BTC led to greater returns in the following rally that would take place in 2020.
AutoTrader on Independent Reserve
Independent Reserve has a feature called AutoTrader that allows you to create automated strategies to dollar-cost averaging into bitcoin or your preferred crypto.
- AutoBuy will automatically execute a crypto purchase once fiat is deposited into your account.
- AutoSchdeule will automatically execute a crypto purchase on a set schedule using fiat in your account.