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dollar cost averaging dca

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Dollar Cost Averaging (DCA)

Dollar-Cost Averaging, or DCA, is a simple, and productive way to invest in cryptocurrencies. It is especially suitable for beginners who do not have the time and opportunity to follow cryptocurrencies on a daily basis. In this article, we’ll tell you why you might want to try DCA.

Investment decisions are difficult

Bitcoin became a mainstream investment in 2017. Even people with poor crypto knowledge joined the late 2017 rally and the subsequent collapse, during which Bitcoin fell by more than 80%. Many altcoins crashed 95% to 99% from their all-time highs.

In hindsight, buying Bitcoin at the bottom of the crash seems easy. Especially after a drop of over 80%. But, in real life, the situation is quite different.

When cryptocurrency prices plummet, most investors get scared and exit the market. The whole market panics. This will be fuelled by negative press releases and news articles. At that point, even professionals find it really hard to pull the trigger.

If you’ve stayed in the game throughout the bear market, you’ve probably bought before. In 2018, for example, the long-standing level of $6,000 was considered to be the final bottom. Bitcoin crashed 50% from even this level.

What about selling? Surely everybody realized to sell bitcoin in December 2017 when the price reached $20,000? In reality, the $15,000 to $20,000 gap was exactly where the most hobby-investors jumped in.

This is where investment decisions are driven by FOMO or Fear Of Missing Out. Social media, in particular, contributes to this mania. Even professionals can’t predict the exact top of a FOMO-fuelled run.

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Bitcoin’s price from early 2017 to 2021

In 2017, many professionals sold their investments at the $8,000-$10,000 price range, which was considered an absolute top. When prices crashed, people jumped in way too early. Many bought “the bottom” at $15,000 and $10,000 only to find out there was still a long way to go.

The point is this. Even if you know how to recognize the tops and bottoms of the market, it is exceedingly difficult to make investment decisions during extreme price movements.

In the cryptocurrency rally of 2020 and 2021, the same thing happened. The price of Bitcoin went up to $64,000. Just a few weeks later, it dropped 50%.

DCA helps an investor

What does Dollar-Cost Averaging mean? It is essentially the same thing as making monthly or weekly purchases.

As mentioned before, it is difficult for an investor to find the absolute peaks (sales) and bottoms (purchases) of the market. Let alone sensibly during them. In hindsight, we are all geniuses, but living in that flood of information and emotions is quite different.

DCA will help you get rid of the emotional rollercoaster. The idea is to buy once a week or once a month. Why not once a day too – this is entirely up to the investor.

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A graph of $100 invested in Bitcoin weekly for two years (July 2019 to 2021). You would be on profit +173%. Source: dcabtc.com

If the price goes up so, the price of your portfolio goes up. That’s nice. If prices fall, that is good in the long run too. It means you can buy coins with a discount. Either way, you can feel happy!

The DCA is a particularly good way to invest in Bitcoin, as it has been researched to reward investors. Currently, any period of at least one year (even years: 1 year,2 years, 3 years, etc.) backward would have yielded a profit.

With DCA, an investor can automate investments on cryptocurrency exchanges. Just deposit enough fiat money to your account and set up daily, weekly, or monthly purchases.

Summary of the DCA

Dollar-Cost Averaging, or DCA, is an easy, efficient, and painless investment method for Bitcoin. It’s also been very profitable throughout Bitcoin’s history. Millions of beginners would have saved a lot of money by using DCA.

What’s the downside of DCA, because there has to be one, right?

The downside is that the investor will never get the best return on the market. You are going to make lots of purchases at a higher-than-average price. One year of DCA purchases (weekly) would have yielded a 43.75% return. However, at the same time, Bitcoin’s price went up 170%.

This maximum return is only available to the few and the chosen. Many of these risk-takers make wrong moves and lose money. There are none who can always predict the tops and bottoms throughout the years.

DCA is a great way to invest in cryptocurrencies. This is, of course, if the market keeps going up in the future. History is never a guarantee of future profits.

Photo by Pixabay from Pexels

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Articles written by Bitcoinsentralen are produced by our team. There are several crypto specialists working at Bitcoinsentralen. The head analyst of Bitcoinsentralen is Antti Hyppänen.