What is Dollar Cost Averaging in crypto?
What is dollar cost averaging in crypto?
Price volatility and market fluctuations are some of the reasons most commonly cited as concerns by those hesitant to start investing in cryptocurrencies and digital assets. Dollar cost averaging (DCA) is a way of reducing the impact of price volatility and taking advantage of price fluctuations to make them work in your favour.
- What is dollar cost averaging?
- Why is dollar cost averaging a good strategy?
- DCA example
- Products you can use to DCA
What is Dollar Cost Averaging (DCA)?
DCA is a popular crypto investing strategy and is used by both beginners and seasoned investors alike. In simplest terms, it is the practice of investing set amounts at regular periods over time instead of making one larger investment.
This means that you’ll be investing in an asset at different price points over time, which averages out the ‘total cost’ that you pay for the asset.
Why is Dollar Cost Averaging a good strategy?
DCA is a way of removing human emotion from your investment decisions. Often, investors will try to time the market in that they will wait for a good entry price, only to find the value of the crypto they have invested in drops. This can lead to frustration and tends to lead to the buyer ‘panic selling’ their asset, believing that they have made a poor investment. As the market improves again and the value of the sold crypto increases – the investor regrets their decision to sell.
DCA is a great way of removing the psychological element and building a crypto portfolio over time.
Dollar Cost Averaging example
Products you can use to DCA
In the past, to buy cryptocurrencies you would need to log in to an exchange, deposit some regular fiat money and exchange it for cryptocurrency. Thankfully, there are now a number of apps on the market that allow you to easily DCA from your mobile – often letting you buy crypto with Apple Pay.
You can use the Minke app to DCA into crypto via Apple Pay at regular intervals – for example, on the day you get paid each month. There is a minimum deposit of $100, but you can hold that $100 in a stablecoin like USDC which has no price volatility, then exchange it periodically for the crypto you want to hold. Minke is a non-custodial provider, so you always have ownership of your assets.
You can set up recurring buys via Coinbase using their app or browser. Coinbase is a centralized custodial exchange and you will need to prove your identity to use their services. Once you’ve done so, setting up recurring buys is easy. Just choose the crypto you’d like to buy and then choose how often you’d like to repeat this buy. Coinbase is one of the highest fee charging platforms, so do be aware of this.
The Swan app lets you set up recurring Bitcoin buys on a daily, weekly or monthly basis. You do need to provide identity verification to use their app and at present it is only available for users in the United States. Swan is a custodial provider, but you’re able to withdraw to any crypto wallet.