What Is Dollar-Cost Averaging and How to DCA Crypto
Should you invest all your money in crypto at once when prices are low, or is it wiser to spread your investment over time by consistently buying at regular intervals, regardless of price fluctuations?
In this article, we'll explore the latter strategy, known as dollar-cost averaging (DCA). You'll learn how DCA works, its key advantages and drawbacks, and how to implement it effectively in the crypto market using VALR's new Repeat Orders feature.
What Is Dollar-Cost Averaging (DCA)?
Dollar-cost averaging is an investment strategy where fixed amounts of money are invested at regular intervals, regardless of the asset's price.
This investment strategy removes the pressure of trying to time the market and reduces the impact of price volatility. Since Benjamin Graham introduced this concept in his 1949 The Intelligent Investor, it has become a popular strategy for investors who want to build their positions gradually and minimize risk.
For example, suppose you have $12,000 in your bank account, which you have dedicated exclusively to crypto investments. But instead of investing them all at once, you divide these funds into equal amounts ($1,000) and use them to buy $1,000 of Bitcoin (BTC) on the first day of every month. Let's see how this investment would have looked in 2024:
| Trade Date | Trade Amount | Bitcoin Price | BTC Bought |
|---|---|---|---|
| January 1 | $1,000 | $42,208 | 0.02367 BTC |
| February 1 | $1,000 | $42,583 | 0.02349 BTC |
| March 1 | $1,000 | $61,298 | 0.01631 BTC |
| April 1 | $1,000 | $71,246 | 0.01403 BTC |
| May 1 | $1,000 | $60,749 | 0.01646 BTC |
| June 1 | $1,000 | $67,474 | 0.01482 BTC |
| July 1 | $1,000 | $62,734 | 0.01594 BTC |
| August 1 | $1,000 | $64,679 | 0.01546 BTC |
| September 1 | $1,000 | $58,960 | 0.01696 BTC |
| October 1 | $1,000 | $63,243 | 0.01581 BTC |
| November 1 | $1,000 | $70,265 | 0.01423 BTC |
| December 1 | $1,000 | $96,513 | 0.01036 BTC |
| Total | $12,000 | $63,496 (average) | 0.19765 BTC |
As the above example illustrates, DCA is a balanced approach to crypto investing, in which you don't have to worry about the prices when executing the orders. The strategy significantly reduces risks for investors but may also limit their potential returns in a bull market. For instance, if you invested all your $12,000 in BTC on January 1, 2024, you could have bought 0.2843 BTC, which is 43.84% more than your total Bitcoin holdings with dollar-cost averaging.
However, most investors don't know how to time the market. You may succeed at some times, but you will fail to purchase crypto at low prices in the majority of cases. In these scenarios, DCA may prove more profitable in the long run. For example, it is better to buy Bitcoin at the average price of $63,496 instead of investing all your $12,000 when BTC is trading at $70,265 (or $96,513).
The Pros and Cons of DCA
You can find the potential benefits and disadvantages of the dollar-cost averaging strategy in the table below:
| DCA Pros | DCA Cons |
|---|---|
| Suitable for both beginner and veteran crypto investors | May limit potential gains in a bullish market |
| Makes crypto asset investment automated and less of a hassle | Requires a long-term approach from the investor |
| Reduces the risks of volatility and encourages disciplined investing | Still poses asset-related risks to the investor, especially if it declines in value in the long run |
| Limits losses when the market declines | May come with increased fees for investors due to the large number of trades |
| Requires no effort or time to time the market |
How to Execute a Dollar-Cost Averaging Strategy on VALR
Dollar-cost averaging is a balanced strategy that eliminates the impact of emotions, mitigates volatility, bear market-related risks, and makes investing easy and straightforward for crypto users. For the average investor, it may yield better results in the long run, as there's no need to time the market to realise decent returns.
The good news is that you can now execute the DCA strategy seamlessly in the crypto market via VALR's new Repeat Orders feature. With Repeat Orders, you can automate your digital asset purchases at regular intervals to consistently invest in cryptocurrencies without manual intervention.
Here's how to set up a DCA strategy with Repeat Orders on VALR using the website:
Step 1: Go to Repeat Orders
After logging into your VALR account, head to the "Repeat Orders" page, which you can find under the "Buy Crypto" tab on the top.
Step 2: Create a New Repeat Order
Click "Create New Repeat Order" and select the cryptocurrency to buy and the respective amount, the asset to spend, and the interval (e.g., every three months). You should also tick the box to confirm that you accept VALR's Terms of Service.
Step 3: Set an Optional Expiration
Optionally, you can set an expiration for your Repeat Order. Simply specify the number of times the order should run before it automatically expires.
Step 4: Confirm Your Repeat Order
When you are ready, click the "Confirm" button. After your Repeat Order is confirmed and saved, VALR will execute your DCA strategy automatically based on your parameters.
Ready to DCA crypto with Repeat Orders on VALR? Create an account to get started!
Frequently Asked Questions
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Dollar-cost averaging is an effective strategy for reducing risk in crypto investments by spreading purchases over time to mitigate volatility and avoid trying to time the market.
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To calculate the average cost basis for crypto, divide the total amount spent on all purchases by the total amount of cryptocurrency acquired over those transactions.
Risk Disclosure
Trading or investing in crypto assets is risky and may result in the loss of capital as the value may fluctuate.
VALR (Pty) Ltd is a licensed financial services provider (FSP #53308).
