Dollar Cost Averaging

Dollar Cost Averaging - the Crypto hack that works!

Dollar Cost Averaging is a reliable investment strategy in traditional stock markets. Similarly, it can be applied across the crypto industry too. Since the crypto markets fluctuate more than stock markets, using proven strategies is a safer choice.

What does Dollar Cost Averaging Mean?

Dollar Cost Averaging or DCA is an investment strategy in which one buys smaller quantities of an asset at regular periods. It is also called Constant Dollar plan, Unit Cost Averaging, Incremental Trading, or the Cost Average Effect. For this, an investor divides the total investment amount into equal small parts and invests them in intervals. This is in contrast to lump-sum investing. In which, one buys an asset at once with the total investment amount.

Let us consider an example:

Tom wants to invest $50000 in cryptocurrency XYZ. Below is a comparison of buying XYZ using Lump-sum and DCA over a five-month window.
dollar cost averaging
If Tom buys XYZ during the first month, he receives ≈3333 coins. For Tom to make profits using Lump-sum, he would have needed to buy it when it was either at $14 or at $13.30. However, during the first month, he would not know the future dip in price. Tom would need to constantly keep tracking the market cycle to ensure he enters the market at the correct time.

On the other hand, regardless of when Tom enters the market, by spending small parts of the total investment amount over regular intervals, Tom is able to make more profits by using Dollar Cost Averaging.

Benefits of Dollar Cost Averaging

    1. DCA is especially useful for people who do not have a big saving that they can invest in or those that are not comfortable with investing a huge amount at once. Since DCA involves making smaller purchases at regular intervals, you do not need to invest a large sum of money at once. You may set aside a fixed percent of your income each month and invest in cryptocurrency.

    2. Market cycles are complicated. Even the most experienced crypto traders cannot correctly predict the market swings. It is always advisable to buy the dip. But one has to constantly stay on alert to identify it. Fear and greed have a great impact on the crypto markets. When assets tend to dip, people rush to sell off their crypto in order to mitigate losses. However, a dip enables you to buy more of the same crypto at

    3. Given that crypto trading takes place 24/7 across the globe, it becomes difficult to correctly time the market. However, Dollar Cost Averaging is not dependent on market cycles. So, one can avoid the risk and difficulties related to market timing.
  • Notes before you invest using Dollar Cost Averaging

    • Consistency
    • Dollar Cost Averaging comprises of two main factors – amount and interval. You need to ensure that you fix these and stick to them. DCA is a long-term investment strategy. As such, you need to be consistent with your periodic investments. Whether the cost of the asset is going up or down, you need to keep investing the same amount at regular intervals. Over time, DCA will help mitigate the losses by averaging your buying price.

    • Correct Investment
    • Regardless of the strategy, you adopt while buying crypto, it needs to be a good investment. To achieve this, the crypto value needs to appreciate over the total time period. If you select a cryptocurrency that is depreciating constantly, it will not have the desired results, regardless of the strategy. Therefore, you must always research thoroughly before you invest in any crypto project.

    • Transaction costs
    • Each time you make a crypto purchase, you are charged a transaction fee. Hence, making multiple transactions will incur more transaction fees. However, if your asset performs well, these transaction costs will be insignificant. Moreover, you can buy crypto from us at highly convenient rates.

    Please note that this article is an opinion, and does not represent financial advice by IN4X Global.

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