How dollar-cost averaging works

written by mandyzcampbell

How dollar-cost averaging works

Learn how buying a little at a time helps you control your average price for bitcoin and other crypto assets.

What is dollar-cost-averaging?

Dollar-cost-averaging (DCA) is a pretty simple way to buy an asset, like bitcoin (BTC). Instead of buying a certain amount of BTC all at once and at the same price, you buy a little at a time over a period of weeks or months. You could decide to buy $20 worth of gold per week over the next month for instance, and that would be dollar-cost averaging.

Why would you do that? Well, DCA is particularly handy in the case of volatile assets. An asset is considered volatile when its price goes up and down quickly. Bitcoin, for instance, is very volatile: It recently went from $64,000 to $51,000 per coin in one weekend.

At any given time, the price of an asset can go up, down, or stay the same. If you have $200 to invest, putting all $200 into bitcoin at that specific time means you’ll only benefit if the price goes up. If you DCA, you can guarantee you’ll catch some of the lows and some of the highs, so you’re more likely to buy before the price goes up, at least some of the time.

See what you can do with DCA

Reducing anxiety

DCA is better than virtually all other investment strategies in the long run, but it also has a less obvious perk: peace of mind. Trying to time the market is not just difficult, it can be close to impossible. That’s especially true in crypto, where markets run 24/7 all around the world and huge price changes happen in a flash. While you sleep, the market can change drastically based on news from another part of the world.

Now, what one calls peaceful, another might call boring. There is a reason trading is appealing: You can get rich, or get a whole lot of adrenaline rushes trying. And the crypto markets move fast—that means lots of opportunities for adrenaline.

Of course, there is a middle ground between using DCA for all of your investments and staring at trading charts all night long. It’s possible to use DCA for a certain portion of your portfolio and keep enough funds in your account to use when the price dips.

Everyone has a different appetite for risk, and DCA isn’t for everyone. But for people who want peace of mind and are oriented towards building long term wealth, it helps you have more control over your average price.

Set your first recurring buy with Okcoin

This post is for educational purposes and is not investment advice.

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