Best way to invest in crypto - dollar cost averaging (DCA)
Crypto Market

Best Way to Invest in Crypto: Dollar Cost Averaging (DCA)

4 min read

Here, in this post, we’re going to talk about the best way to invest in crypto, especially for beginners. It is called dollar cost averaging (DCA). And if you want to buy cryptocurrencies at the best possible time and price in order to see the best possible gains in the long run, you should know how it works.

Don’t go in blind

Every day, more and more people start investing in crypto to avoid the inflationary state of their fiat currencies or to see some sweet gains on their capital. But with this flocking of new people to the crypto market, many beginners are losing their money instead of seeing the benefits of investing in crypto.

Some lose their money to scams and some just buy and sell at the absolute wrong times. To avoid the first cause, you should always do extensive research before investing serious amounts of money into any project. And to avoid the second cause, your best bet is to choose the best coins and tokens, dollar cost average (DCA) into them and HODL. You can use technical analysis to try and time your buys. But even the most professional and experienced traders and investors don’t get it right all the time.

Note: If you don’t know what dollar cost averaging is, read this post till the end. But if you don’t know what coins and tokens are, what HODL means or how you can research a crypto project, you should also read our guides to types of cryptocurrencies, crypto slang and crypto fundamental analysis.

What is dollar cost averaging or DCA and how does it work?

Cryptocurrencies are volatile assets. Even the price of top crypto assets with large market caps can move more than 20 percent in a single day. So to avoid “the dip that keeps on dipping” when buying crypto, you should consider dollar cost averaging instead of a lump sum buy. Because even people who understand the macro picture and can do technical analysis well, don’t get the bottom and top right every time.

In dollar cost averaging, which is an investment or buying strategy, you determine the amount of money you want to spend on an asset and the time frame that you have in mind for spending this amount. For example, you can say that you want to buy 1200 dollars worth of Bitcoin or Ethereum in one year.

Then, you’re going to choose a frequency. This will usually be once a month or something similar. And you’ll divide the amount of money you want to spend by the number of times you want to buy, which is the timeframe divided by the frequency. So in our example, you’ll buy once a month for 12 months and each time you’ll spend 100 dollars.

You should also decide the day of the month you’ll buy, for example the first day of every month or something like that. And you can also determine the amount based on your income and savings for each mount. (If you have problem saving money, read this post.)

Now, you have your dollar cost averaging strategy and all you have to do, is to stick with it! Don’t try to buy at a better price when the predetermined time to buy arrives. Just stick to the plan and buy at the first day of every month for 12 months and after a year, you’ll spend the amount you wanted without too much exposure to the volatility. Because the average price of the asset you’ve bought will be the average of 12 months of price action.

If you do this for a few years, you’ll see that this strategy can perform very well, at least as well as trying to catch the bottom with a lump sum buy and almost always better, unless you’re a very lucky and very professional and knowledgeable trader/investor.

Note: I know its name is “dollar” cost averaging, but you can use any fiat currency instead of US dollars to implement this strategy.

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Your turn

Have you tried dollar cost averaging into an asset? What is your opinion on this strategy? Share your thoughts in the comments below.

If you’ve found this post useful, send the link to your friends and share it on your social media so we can all be financially free one day!

***Last Updated on 26 March 2022 by Hamed Derakhshani (Guy with a Wallet)

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Avatar of Hamed Derakhshani (Guy with a Wallet)

I am Hamed aka Guy with a Wallet. My educational background is in management, economics and insurance. And for the past 8+ years, I’ve been a professional writer and content creator. My mission here is to educate people on decentralization, cryptocurrencies, economics and personal finance.

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