What is Dollar Cost Averaging?
Dollar Cost Averaging (also known as DCA) is a simple but effective investment strategy that involves making a series of small, recurring investments over a long period of time. DCA is an excellent investment strategy for volatile markets and makes is less risky compared to other investment strategies.
How does Dollar Cost Averaging work?
When you make small regular, investments over a long period, like if you were to buy $100 worth of Bitcoin each week, for example price fluctuations benefit you over the long term. When the price of Bitcoin is high, your $100 will buy you a small amount of Bitcoin. But when the price of Bitcoin is low, that same $100 investment will go much further.
A less risky way to invest
One of the most emotionally challenging aspects of investing in Bitcoin can be the dramatic price swings.
For example, if you invest $1,000 worth of Bitcoin at once and we experience a price dips, your lump sum will be directly affected. This means your overall investment of $1,000 will be depending on the marketing to first recover before you potentially profit. Opting to DCA means you spread that investment over a longer period of time instead of all at once. For example if you chose to invest the same $1,000 but over a 10-week period putting in $100 each week, you are less affected by price swings and your money is invested as the market recovers.