What is Dollar Cost Averaging in Crypto?

Your guide: What is Dollar Cost Averaging in Crypto?

So, do you consider yourself an avid crypto trader? Maybe you’re just starting to get into it and want to arm yourself with as much information as possible. After all, you’re trying to make this as lucrative as possible, right?

It can be confusing, too. There are so many experts online who’ll tell you all about the strategies that were perfect for them. So, don’t worry if you get a little confused. One such strategy that you might’ve come across is what’s called “Dollar Cost Averaging.”.

If you’ve never heard of it, don’t worry. We’ll cover all the basics below. But if you’ve ever wondered, “What is Dollar Cost Averaging in Crypto?” you’re in luck.

Today, we’ll cover just that and move on. Keep reading to find out more.

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What is dollar-cost averaging in crypto?

First things first. Let’s answer the main question at hand, “What is Dollar Cost Averaging in Crypto?”.

In short, dollar cost averaging (DCA) is a type of investment strategy. Now, you know what most investors think: “Buy low, sell high”?

This strategy is not as volatile. You set a fixed amount of money aside to buy an asset and invest at regular intervals. No matter the asset’s price, So, you’re essentially investing over a set period without considering the market’s price. You’re essentially creating your average market price.

Is DCA a good crypto strategy?

Next, let’s review if this is a good strategy. If you are risk-averse and want to steadily grow your portfolio, then this could be a great option for you.

For example, if you subscribe to the old-school mentality of buying low and selling high, you’re going to be in for a wild ride. Why? Well, simply because you’re depending on the market’s demands. Everyone knows the market is naturally going to go up and down.

So, by setting aside a fixed investment amount and buying at regular intervals, no matter the price, you’re limiting the amount of risk associated with investing.

What are the downsides of DCA?

Now, let’s consider the alternative. Let’s look at the main downsides of this DCA strategy. The main disadvantage of this strategy is that, although you invest money at regular intervals, typically, most market prices go up over time.

So, it could be argued that you will be investing in smaller amounts over time. Especially since this is a long-term strategy.

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The main way to start the DCA strategy

The first thing you need to do is determine how much money you ultimately want to spend. Once that’s decided, you need to determine your intentions for investing. Do you want to buy it monthly? Bi-weekly?

Next, you’d select the digital asset you’d like to use to invest. The good thing is that most cryptocurrencies allow you to set an automatic schedule for buying. Then, you just stick with it. No matter if the market is up or down, just stick with the plan.

Conclusion

In conclusion, the dollar cost averaging strategy is a pretty straightforward and safe investment strategy for most. If you prefer to avoid as much risk as possible and avoid a market’s volatility, this could be the option for you. Just remember that it is meant to be a long game plan versus a get-rich-quick scheme.

So, you do need to plan out several months to see the actual upside. Happy trading!