DCA Crypto: The Easy Way to Get Started with Crypto Investing

What's your favorite crypto investing approach and why is it DCA? 😏

Welcome to the world of crypto! If you’re new to investing and want to know how dollar-cost averaging works in crypto, this guide is for you. We’ll cover the basics and show you how to get started with a DCA strategy today.

Oh, and...This is not financial advice 🙅‍♀️

What exactly is dollar-cost averaging (DCA)?

The DCA strategy is simple: Buy an asset with a fixed dollar amount on a regular schedule, regardless of its price.

DCA generally reduces risk by spreading out your investment over time. This way, you don't have to worry about buying into an asset at its peak or missing out on gains because of timing issues. It also helps investors avoid emotional highs and lows associated with investing in crypto assets--you can just get on with it!

It's not the most exciting or interesting way to invest, but people stick to it because DCA consistently outperforms other strategies.

What is DCA in crypto?

Here's how DCA works with cryptocurrency: You pick a coin (or coins) and choose how much money per week/month/quarter you want to put towards buying it. Then you set up a system for doing it, either manually, or automatically.

It's an investment strategy that is simple and effective, because you don't have to worry about timing the market or even if your coin goes up or down—you just buy it regularly, while reducing the chance of getting burned by market volatility.

DCA vs. lump-sum investing

In lump-sum investing, instead of investing at regular intervals, you invest a bunch of money at once. It's higher risk than DCA. This is because DCA helps you spread your investments over time, which reduces risk in both the short term and long term. It also allows you to build up more experience before making big decisions about your crypto portfolio.

Lump sum investing can be beneficial if you're an experienced investor who knows what they're doing and has done their research on crypto markets (and therefore understands how much risk they're willing to take). If you're new at cryptocurrency investing, though, DCA may be a better option for now until you get more familiar with it all!

Dollar Cost Averaging (DCA) vs Value Averaging (VA)

Value averaging (VA) works like dollar-cost averaging (DCA) in that you're still making contributions on a schedule, but you might contribute a different amount every time. Your goal with VA is to buy more of an investment when it is cheap and less when it is expensive.

Let's say the price of Bitcoin drops by 20%. Someone using a DCA crypto strategy would keep buying $100 worth of Bitcoin every month, like they always do. Someone using VA would decide to spend more on Bitcoin, maybe $200 so they can get more of it at a cheaper price.

Is DCA a good choice for those who are new to cryptocurrency investments?

Generally, yes, because it's low-risk and simple. Crypto is much more volatile than the traditional finance system and keeping up with changes can be really tough, even for more advanced crypto investors. If you're looking for an easy way to get into crypto investing but don't want to deal with constantly checking prices and charts, DCA is worth considering.

DCA isn't as desirable for short term traders or day traders who want quick gains from trading with volatile cryptocurrencies.

What are the benefits of dollar-cost averaging?

• It's simple.

• It's proven to work better than market timing.

• You don't have to keep a close eye on market fluctuations (which means it's probably better for your mental health).

• You can automate it. Set it and forget it!

What are the drawbacks of dollar-cost averaging?

• If you're paying high fees for each trade (which most people do), then DCA will be more expensive than simply buying all at once or even in one lump sum later down the line when prices are lower.

• It can be hard to resist FOMO (fear of missing out) and FUD (Fear Uncertainty Doubt). Many DCA plans were probably abandoned during the crypto winter of 2022 🥶

• You have to stick with it for a long time to realize the benefits.

Is dollar-cost averaging safe?

Compared to other investing strategies, DCA is generally safe. Dollar-cost averaging is a good strategy that’s been used by investors for decades. It works well in most scenarios, but if the market is going through a major correction or crash and you’re dollar-cost averaging into it, then you may find yourself buying more shares at higher prices than you would have originally planned on buying if you had invested all your money at once.

DCA is also safer if you don't put all your eggs in one basket. It's always important to diversify your portfolio, so that if one asset class goes down, another will likely go up.

While DCA is more beginner-friendly, it's important to remember that it's not a guaranteed way of making money; it only minimizes risks by setting aside funds over time instead of buying all at once. You should always remember that investing in crypto is risky--and there are no guarantees!

When should you stop dollar-cost averaging?

The general rule of thumb is to stop dollar-cost averaging when your investment has reached its target. For example, if you want to invest $10,000 in Bitcoin but don't have all the cash on hand at once, start by purchasing $500 worth of BTC and then set aside another $500 every month until you reach your goal.

Another common piece of advice is to stop DCA when your investment has doubled in value. This means that if you're dollar-cost averaging, you should stop once the price of your initial investment has doubled. For example, if you invest $500 and the value of your coins goes up by 50%, then you should sell them at this point.

When the market is bearish and unlikely to recover soon. If you're only dollar-cost averaging to reduce risk, then it makes more sense to stop once you've reached your desired allocation than continue investing in a falling market.

How to start DCA crypto investing

1. Decide how often you will invest.

This will probably depend on how often you get paid. Most people DCA weekly or monthly.

Since every trade involves fees, you might save money by investing less often.

2. Decide how much you will invest.

The next step is to decide how much you can afford to invest. This will depend on your financial situation, obvs.

3. Choose a coin.

Choose an asset that you believe will rise in value over time and hold on to it through all types of market conditions, including bear markets. Since no cryptocurrency can make you rich overnight, it's best if you choose one that has been around for a while and has shown steady growth over its lifetime.

In order to find out which crypto assets have performed well in the past, look at historical figures like CoinMarketCap's historical data feature. From here, you can see their performance over various time periods like 1 year or 5 years.

Many investors allocate their DCA amount across multiple coins/tokens. For example, you might decide to put 50% of your DCA amount into Bitcoin and the other 50% into ETH.

4. Set up your purchases.

Choose an exchange where you'll buy your DCA crypto. Look for lower trading fees, especially if you have a frequent DCA schedule.

Some exchanges offer services such as storing your coins in their secure wallets or providing an easy way to transfer money between exchanges if you want to change one type of coin into another. Many exchanges also have a "recurring buy" feature that makes DCA easy.

Optimizing your DCA crypto strategy with Boto.io

Since DCA is a repetitive investing strategy, you can make the whole process more efficient with the help of bots.

As mentioned earlier, many exchanges have recurring buy features. However, it might make sense to make your DCA purchases when gas fees are low. Set up a gas tracker for the chains your coins are on and DCA when the network is less busy: https://boto.io/bots/?search=gas

It's also smart to get regular alerts of your wallet/coin balance, so you can rest assured DCA is on track: https://boto.io/bots/?search=balance

Want to set up a custom DCA bot without coding? Check out what we have cooking and give it an upvote: https://boto.io/feature-requests/588/

Conclusion

So, if you're wondering how to get started investing in cryptocurrency and want a foolproof way to do it, then dollar-cost averaging is the answer. It's easy, safe and effective.

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About Krystle

Krystle Blough is the Head of Community at Boto.io and has been working in education & automation for 15+ years. She has presented at CMX Summit and Wikimania conferences about her experience in increasing adoption of emerging technology. She ran a 50k trail marathon once and now people think she runs fast (false).