Dollar-Cost Averaging Bitcoin: How to Get Crypto Rich Slowly
Bitcoin dollar-cost averaging has become one of the most popular ways to invest in bitcoin. Read on to learn what Bitcoin DCA is, how it works, and how you can get started too.
What Is Dollar-Cost Averaging?
Dollar-cost averaging (DCA) is a strategy that involves investing a fixed amount of money in an asset at regular intervals for an extended period of time. This strategy is suitable for all investors, but particularly for those with only small amounts of money to spare.
Dollar-cost averaging helps investors build their wealth over time. Also, it takes away the need to time the market, a task that’s difficult to master in a highly volatile market. While it appears like a painfully slow process of potentially creating wealth, DCA may help lower an investor’s average cost while minimizing the effect of volatility on their investment portfolios.
Dollar-cost averaging is not a strategy limited to crypto assets. It has traditionally been used to grow retirement savings like 401(k) plans, buy mutual and index funds, and invest in exchange-traded funds (ETFs).
What Is Bitcoin Dollar-Cost Averaging?
Bitcoin dollar-cost averaging means purchasing BTC with a fixed dollar (or euro, pound, or any other fiat currency) amount regularly, regardless of the market price. The purchase interval could be daily, weekly, or monthly, depending on the investor’s preference.
Many crypto exchanges and bitcoin platforms offer tools to make it easy for investors to DCA into bitcoin, allowing you to automatically invest in bitcoin using a bitcoin savings plan.
The Benefits of Dollar-Cost Averaging Bitcoin
Bitcoin is appropriate for dollar-cost averaging because of its market volatility, which makes it hard to time the “right” moment to buy. So, rather than risk your money with one massive investment, you may be better off investing small amounts at regular intervals. The potential for high returns also makes Bitcoin fitting for dollar-cost averaging.
Let’s take a look at the benefits of dollar-cost averaging bitcoin.
1. You Can Smooth Out Market Volatility
Let’s say you want to invest $2,000 in bitcoin. You could make a one-off investment. This way, however, you’ll lose the chance to enter a buy position when prices drop lower. On the other hand, you could take the longer and slower process and conduct bitcoin DCA by investing $20 weekly, for example. This means you’ll scoop up bitcoin at varying prices — both high and low. These prices will average out, smoothing out the market volatility of bitcoin.
2. It Takes the Emotion Out of Investing
Dollar-cost averaging bitcoin prevents emotional investing based on fear and greed. Emotional-based investing should not be an investor’s first choice because it’s not based on facts. Hence, it increases the chances of incurring a loss because you could end up FOMO-buying or panic-selling very easily.
3. It Keeps Investors in the Market
Bitcoin DCA keeps investors in the market, allowing them to reap returns when prices climb. It also means that they’ll be buying when prices dip. As the saying goes: It is not about timing the market but spending time in the market.
4. It Prevents the Dangers of Market Timing
Trying to time the best moment to buy BTC is a strategy that can easily misfire due to bitcoin’s volatility. By setting up a bitcoin savings plan, you can automate the process of dollar-cost averaging, thus preventing the need to attempt to time the market.
5. It’s Hassle-Free
Bitcoin DCA apps enable automatic bitcoin purchases using a recurring bank transfer, taking away the hassle of investing as the entire process becomes fully automated after an initial setup.
6. Anyone Can Invest in Bitcoin
Since dollar-cost averaging bitcoin works even with a small amount of money, anyone can use this strategy. This way, investors don’t need a large initial capital to invest in bitcoin. Instead, they can save in the digital currency regularly in small amounts, if they prefer.
7. Potential for High Returns
By regularly stacking sats, you could potentially earn high returns thanks to the effects of compounding returns. You may earn returns on the initial investment and subsequent investments if bitcoin rises in value over time.
Historical Returns of Bitcoin DCA
Imagine you have been investing $20 weekly in bitcoin for the past five years. How much do you think your investment would be worth today?
According to the dcaBTC calculator, the total value of your investment would be worth $21,643 as of August 31, 2022. That means your total investment of $5,220 would have increased by 312 percent.
This highlights the power of regularly saving in bitcoin as you benefit from the positive effects of dollar-cost averaging.
However, it’s also important to note that during a bull market, a single buy and hold strategy tends to perform better than dollar-cost averaging. During volatile markets, however, Bitcoin DCA tends to outperform a one-off bitcoin investment.
How to Dollar-Cost Average Bitcoin: Setting Up a Bitcoin Savings Plan
Investors can set up a bitcoin savings plan manually or automatically. The manual option requires an investor to schedule a task in their calendar to purchase a fixed amount of BTC weekly or monthly on their preferred exchange or bitcoin app. DCAing bitcoin manually can go smoothly as long as investors remain disciplined and remember to transfer their BTC from the exchange to a secure personal wallet.
The alternative is less challenging, though. Using one of the many Bitcoin DCA apps, saving in bitcoin is hands-off because the app does most of the work for you.
You can access bitcoin dollar-cost averaging services on apps like CoinCorner, Coinfinity, Relai, Swan, and Bitaroo. Crypto exchanges such as Coinbase, Binance, and Kraken also have a recurring buy feature for bitcoin.
Here’s the process of setting up an automated bitcoin savings plan:
- Register an account with a DCA service or a crypto exchange that offers recurring buys as a feature. If the platform has an app, download it.
- Go to the automated buy bitcoin option and enter the amount you want to purchase regularly.
- Select the frequency of purchases. This could be daily, weekly, or monthly.
- Set up a recurring bank transfer or any other payment method based on the instructions provided.
- If possible, set up automated BTC withdrawals to your personal wallet. Otherwise, manually transfer the purchased bitcoin to a secure personal wallet.
Once you’re done setting up the savings plan, the service will start auto-investing in bitcoin on your behalf based on the frequency you have selected.
When Can I Start Dollar-Cost Averaging Into Bitcoin?
Since dollar-cost averaging doesn’t require you to time the market, you can start using this method anytime, regardless of the prevailing price.
Is It Too Late to Make Money by Dollar-Cost Averaging Bitcoin?
It is probably not too late to make money through dollar-cost averaging bitcoin if you believe in the asset’s future success.
How Long Should I DCA Into Bitcoin?
Dollar-cost averaging is a long-term strategy. However, the exact time will depend on your risk profile and investment goals.