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Dollar-Cost Averaging (DCA) of Cryptocurrencies: Is it a Good Investing Strategy?

Cryptocurrencies, especially Bitcoin, have extremely high volatility. A 10% swing up or down is considered normal. High volatility makes cryptos very risky to invest in for most investors and traders. 


In its more than 10-year lifespan, Bitcoin (the first and the largest cryptocurrency) has witnessed many massive rallies followed by a steep drop in price. Every time such a drop takes place after a rally, the floor price of Bitcoin ends up higher than the price it was before the rally. 


Adam Traidman, CEO and co-founder of a popular cryptocurrency wallet, BRD, said:


“Casual investors have a tendency to buy into the hype cycle and sell when the losses become a reality. It’s crazy, illogical thinking, but it happens all the time. Why would people buy high and sell low? Well, they don’t want to, but they sell out of fear... Before this run up, we were looking at bitcoin prices that were at $8,000, $9,000, $10,000,” Traidman says. “Now we’re upset when it’s three times higher than that.”


It is this problem that led Warren Buffet to come up with the Dollar Cost Averaging DCA strategy of investing. According to this strategy, an investor doesn’t have to worry about the highs and lows of an asset price. Instead, they have to invest a portion of their paycheck in their desired asset, say Bitcoin. DCA crypto investing is a long-term investment strategy that provides you with a decent return even in the ups and downs. 


Traidman says:


“Dollar-cost averaging ends up making sense in the long term,” he says. “If you contribute a little bit every time, in the long term you end up with a pretty darn good return if you weather all the ups and downs.”

Let me walk you through the concept of DCA crypto and other important aspects that you want to know. 

What Is Dollar-Cost Averaging (DCA)?

It is an investment strategy that divides the total amount of investible funds into small increments over a long period of time. DCA strategy involves buying a targeted asset (say Bitcoin or other cryptos) in a periodic manner (say, daily, weekly, monthly, quarterly, etc.) over the long run. 


Instead of investing all your investible funds all at once (lump sum investment), the DollarCost Averaging DCA method makes you invest the total sum of money in small amounts. This reduces the short-term volatility impact on the overall purchase. DCA crypto investing method capitalizes on the market downturns but doesn’t risk too much capital at any point in time of the investment horizon. 


If Bitcoin price drops during the time period during which you are doing DCA investment strategy, you’ll make a profit when the price moves up after the drop. When the BTC price moves up, if you make an investment as per the DCA method, you’ll make a loss when the price moves down. As you are investing just a portion of your paycheck (say weekly or monthly), all of your money is not at risk during the downturn. In this way, you are averaging out the risks of short term volatility concerns. 


DCA crypto averaging strategy utilizes recurring buy of Bitcoin (a certain Dollar amount bought at regular intervals, say, after every week, month, etc.) in a slow but consistent manner. It averages out the volatility risk associated with Bitcoin price and provides you with a good return after a long period of time (say, 5 years, 10 years, or more). Dollar Cost Averaging DCA method consistently tries to protect you from the inherent human tendency of trying to gain all at once. That’s why it is also called the constant dollar plan. 


Rather than a get-rich-quick policy, the DCA method of investing is a long-term wealth-building strategy. 


Real-World Example of Dollar Cost Averaging Strategy of Investing

DCA method of investing is not only used as a crypto DCA strategy and crypto portfolio trading strategies but also in timing the market. If you are not a professional investor and don’t have full-day time round the year to follow the market on a real time basis, dollar cost averaging is the best strategy. This is because it helps you to get rid of studying technical analysis and waiting for the right time to buy dips. Just make a fundamental analysis of the cryptocurrency you are going to buy and keep investing a certain amount of money regularly for a long period of time. 


Now, let’s check the most successful use of the dollar cost averaging method in the real world:

401(k) Plan

The dollar-cost averaging method of investing is used by 401(k) plans. No matter what the price of a given asset (mainly equity) is, purchases are made on a regular basis. This neutralizes the short-term volatility experienced by the equity market. An employee opting for a 401(k) plan can choose a predetermined portion of his/her salary for investment in a wide array of mutual funds, index funds, or even cryptocurrencies (in some cases). 


There are some 401k retirement plans such as ForUsAll Inc., which are allowing their customers to invest up to 5% of their 401(k) contributions in cryptocurrencies such as Bitcoin BTC, Litecoin LTC, and other cryptos. 

How to Invest in the Crypto Market by using Dollar Cost Averaging DCA Method?

You can adopt the DCA method for investing in cryptocurrencies. Let’s consider an example to elaborate. 


Suppose, you started investing in Bitcoin 5-years back, say in August 2016. Let’s take two examples: 

  • Lump-sum investment of US$6,000 in BTC back in August 2016
  • Start investing in BTC through Dollar Cost Averaging Investment


Let’s check what you could have earned in these 5-years by adopting these strategies.

  • Lump-Sum Investment Strategy

At that time, the price of each BTC was around US$100. If you invested US$6000 to buy Bitcoins, you could have bought around 60 BTCs back in August 2016. The price of each Bitcoin is more than US$46,000 now (August 2021). 


This means if you took the high speculative risk of investing in BTC 5-years back, your US$6,000 initial investment would have increased to US$27,60,000 (60 BTCs x US$46,000) in August 2021. Therefore, by taking a very high risk of investing back in mid-2016, you could have increased your initial capital investment by 45,900% (ROI or Return on Investment) or 460-times. This means that your Annualized ROI would have been an astronomical 9,180%. 

  • Dollar Cost Averaging DCA Crypto Investing

Instead of investing US$6,000 lumpsum 5-years back and subjecting it to the risk of high volatility in the Bitcoin market, you could invest that US$6,000 in small increments over these 5-years on regular basis.


Suppose, you started investing US$100 every month in August 2016. By now, you could have invested US$6,000 over the last 5-years. In that case, your investment of US$6,000 would have increased by 950.56% in these 5-years to US$63,033 by now. Your annualized ROI would have been 190.112%. 


This shows that DCA crypto investing is giving you a good return by averaging out your capital’s risk of exposure to the price volatility of Bitcoin BTC. 

Invest in Bitcoin and Other Cryptocurrencies by using Dollar Cost Averaging DCA Crypto Investing Strategy

You can buy and sell cryptocurrencies against various fiat currencies (US Dollar USD, British Pound, Canadian Dollar CAD, South Korean WON, Singapore Dollar, Chinese Yuan, Hong Kong Dollar, etc.) through a wide array of crypto exchanges (centralized or decentralized exchanges). Use DCA strategy to invest in cryptos.


If you want to increase your investment explosively in the coming 5-to-10 years, buy crypto coins now. Keep an eye on the market news, price statistics, block times, and others to time your trading of Defi systems and tokens for maximum profit. 


You can also diversify your crypto coin portfolio by including other cryptocurrencies such as Bitcoin Ether ETH, Bitcoin Gold, Bitcoin Cash BCH, Basic Attention Token, Ethereum Classic, Binance Coin, Wrapped Bitcoin (some also call it wrap bitcoin or wBTC), USD Coin, Gemini Dollar, ERC20 tokens (created on Ethereum blockchain), NFTs, and others. 


Also, invest in various types of stocks, mutual funds, index funds, real estate, and others to improve your personal finance. If possible, get help from a portfolio manager or wealth management firm for maximum return. 


Invest in NapBots: A Dynamic Cryptocurrency Index

Whether you are a professional or retail investor, you can expose your capital to a diversified portfolio of digital assets & crypto asset classes by simply investing in NapBots. It is a smart crypto index service that introduces multifarious features and passive portfolio management strategies for enabling cryptocurrency investors to streamline their trading experience in new ways. 


NapBots provides you various indices that include a basket of tokens with high market capitalization and are categorized by theme (such as Solana, NFT, DeFi, and others). This platform introduces an intuitive interface as well as advanced allocation tools for enabling new investors to create and manage advanced crypto indices easily.


The best part of NapBots is that it tracks and executes trades automatically on the basis of your pre-set choices of indexes. The platform is very affordable as it enables you to start trading as low as US$150 with a monthly service fee of just 2.5%, which is far below the current rate of other cryptocurrency index providers. Therefore, NapBots reduces the financial barriers and at the same time eliminates the need for human intervention and the consequent human error. 


Get started with crypto-asset investing by investing through napbots.com, a dynamic crypto index for expanding diversified exposure to bitcoin and leading crypto-assets at reduced financial barriers and no human error.