Dollar Cost Averaging crypto is a tried and true method for investors to help reduce the risk involved with volatile assets like Bitcoin. It’s also a strategy that aligns well with peoples day to day lives and helps provide both novice and passive investors with a way to automate some or even all of their investing. It also has downsides that you should be aware of too.
What Is Dollar Cost Averaging Crypto?
Dollar Cost Averaging (DCA) crypto is the practice of investing in an asset like Bitcoin over time, usually with regular smaller amounts, rather than all at once with a single larger amount. For example, if you had $1,000 to invest you might buy $100 each week for 10 weeks rather than buying $1,000 of the same investment all at once.
Dollar cost averaging has the same meaning in crypto as it has with other investments (stocks, bonds etc) and has been a very common strategy with many investors around the world for a long time.
Note: The cost basis of your investment is how much you paid for that asset at the time. For example, if you paid $10,000 for 1 BTC, then your cost basis is $10,000. If you then paid $15,000 for another 1 BTC, your cost basis would increase to $12,500 as it’s averaged out over your multiple investments.
DCA Vs Lump Sum Crypto Investing
If you make a single, large investment all at once it’s usually referred to as a lump sum investment. This can be common when people suddenly acquire a large amount of money, for example through inheritance, a tax windfall or bonuses.
Making a single, large investment can often save you a lot in fees or transactions costs. For example, you would only have to pay for one Bitcoin Transaction Fee rather than multiple ones each week or month. You might also get a better trading fee rate as you’re purchasing a larger amount.
