What Is Dollar-Cost Averaging (DCA)?

Taking your first steps in the world of Bitcoin and cryptocurrency can seem scary at first. Fluctuating prices, high values, and the hassle of converting money in a bank to Bitcoin are all strange aspects. However, thanks to the dollar-cost averaging method, everyone can add [small amounts of] Bitcoin to their portfolio with ease. 

Explaining Dollar-Cost Averaging

To enter the cryptocurrency industry as an investor or speculator, one doesn’t need tens of thousands of dollars to play around with. Having access to more finances may yield better results in the long run, but everyone can get involved with as little as $20 per month. Through a method known as dollar-cost averaging, you too can build up a sizable Bitcoin portfolio over time.

As an investment strategy, dollar-cost averaging – or DCA – is a simple method. Traders and enthusiasts buy a fixed amount of an asset, cryptocurrency, or stock. For one person, the limit may be $250 per month, but others may take it slow by allocating $20 per month. Regardless of which option you choose, dollar-cost averaging is the most viable approach to make any long-term investment. 

By making these quantifiable purchases regularly, an investor or enthusiast can smooth out market volatility. In Bitcoin’s case, you may buy a small amount of BTC at a market value of $53,000 per Bitcoin today and $47,000 per BTC next week. Although you get a different amount of BTC for your $20 or $250, your investment’s overall cost will hit an equilibrium at one point. Rather than going all-in with a big investment on day one, slowly building a portfolio through DCA can yield similar, if not better, results. 

More importantly, dollar-cost averaging will create a compounding profit effort, assuming the market plays nice. Assuming the Bitcoin price will keep going up,  there is a chance you will make money eventually every time you make a DCA purchase. Over time, the profit from all of these smaller purchases will add up and compound into a significant return on investment. 

A Suitable Long-Term Play

One of the reasons why dollar-cost averaging and Bitcoin work well together is Bitcoin’s market volatility. Its price is never the same for more than a few minutes, either for better than worse. It is an investment that requires a long-term approach instead of chasing quick profits.

Through the dollar-cost averaging method, investors will smoothen out volatile price swings and lower their average cost of buying BTC. Thanks to this cryptocurrency’s yearly performances to date, it may only take a few months to note a sizable return. Holding BTC for the long-term is a powerful trading strategy that doesn’t require any specific approach other than regularly buying more BTC in small amounts.

Small And Large Investors Use It

Contrary to what many may believe, dollar-cost averaging is not just for small investors. Many Wall Street traders and investors maintain this strategy when exploring new markets, even though their “money pool” may be very different. Even then, they too prefer to buy recurring amounts of specific assets, metals, or cryptocurrencies regularly to keep growing a portfolio.  Gaining exposure to as many different markets as possible always needs to remain the number one priority. 

As many different methods of investing exist today, different traders will explore approaches that suit their needs. The DCA approach helps to become a consistent-trader of investor, regardless of how the market behaves and how much money you can spend. For some Wall Street veterans, dollar-cost averaging is the go-to solution for achieving satisfactory results. 

One can argue that DCA-ing is a passive way of approaching the markets. Anyone can achieve long-term results without worrying about short-term fluctuations or other aspects that may prevent people from creating a portfolio for a rainy day. 

The Key Benefits Of DCA

Over the years, Bitcoin investors pursuing the dollar-cost averaging approach have identified multiple critical benefits to this approach. It is not a matter of believing the Bitcoin price will keep going up over time. Regardless of how one feels about this asset, it is the best-performing asset from 2010-2020. There is no reason to believe the momentum will grow more bearish this decade. 

Negating Market Volatility

Perhaps the biggest benefit to buying Bitcoin through DCA is the negation of market volatility. For those unaware, the value of Bitcoin can go up or down by thousands of dollars every day. Not everyone can deal with such a rollercoaster ride every day. 

It is one of the primary reasons why most people try to dollar-cost averaging their investments over time. The volatility allows them to sometimes add more Bitcoin to their portfolio at a lower price. Continually adding value to your cryptocurrency portfolio will ensure the long-term result is most likely positive in one way or another.

Lowering The Barrier To Bitcoin Investing

It is no secret that investing in Bitcoin seems incredibly scary due to its overall volatility. Thanks to dollar-cost averaging, anyone can invest in Bitcoin without having to worry much or become an active trader. It is perhaps the most appealing method of entering this market without dealing with some of the hassles that traders experience regularly.

More importantly, there is a big difference between trading Bitcoin and accruing a portfolio through regular small purchases. While both methods work for different types of enthusiasts, it doesn’t necessarily take money to make money in the sense that most think. Anyone can invest in Bitcoin regardless of how much money they can afford to spend.

Increasing Returns Over Time

As mentioned earlier, one of the crucial benefits of dollar-cost averaging is how the chance for compounding returns becomes more substantial. Every investment you make is subject to returns and potential profit. Whether those returns will prove positive or negative is a different matter. Bitcoin performs well over longer time frames but is no stranger to trading sideways for months on end, either. 

With an asset like Bitcoin, the returns may continue to compound over and over again. Looking at the value of your accumulated portfolio today and in six months from now may yield very different figures, even when taking your new DCA purchases out of the equation. This method has a lot of benefits in this regard.

An Example Of Successful DCAing

Now that we have all of the technical aspects of dollar-cost averaging out of the way, the time has come to look at some numbers in action. The dcaBTC website is a powerful tool for anyone willing to explore this method of acquiring Bitcoin. 

For our example, we will assume you had $20 to spend on Bitcoin every week over the past year. With a total purchase of $1,060 – $20 x 53 weeks as it counts this week as an investment period too – your Bitcoin portfolio would be worth $5,483. Achieving a portfolio that becomes worth over five times more in a year without trading or actively managing it too much is not always possible with other markets. 

Assuming $20 a week is too much to spend on Bitcoin, we will work out a more conservative approach to Bitcoin DCAing.  In this example, we allocate a budget of $50 per month for the same period of 1 year to date. Our total purchase comes to $600, yet our portfolio would be worth $1,759 by today’s prices. Again, this is a substantial increase in value without having to worry about anything other than having $50 in a bank account to complete your DCA purchase. 

Regardless of how much money you are willing to allocate to Bitcoin or how often you want to do so, there is always the potential to make money. It remains crucial to adjust one’s timeframe for significant returns on investment, as this market will see plenty of price fluctuations every year. 

Using Vaultoro To DCA

Thanks to the many different trading pairs one can explore here at Vaultoro, one can create a diversified portfolio from day one and allocate some profits to DCAing Bitcoin. Through our platform, you can easily enter and exit different markets, including Bitcoin, Dash, Ethereum, Gold, and Silver. Exploring these markets’ combinations to make a profit and using some of those earnings to DCA into the different assets is always worthwhile. 

One option to explore could be to buy gold or silver every week / two weeks / month and allocate half of the earnings to building up a Bitcoin portfolio. When the Bitcoin price drops again, one can easily move their funds back into the precious metals. Nothing prevents you from repeating the process over and over. It can also work the other way: DCAing into Bitcoin and using proceeds to buy gold or silver on the side. The options are virtually limitless as to what one can achieve. 

Closing Thoughts

The method of DCA applies to entering any financial market, whether it is to build up some savings or speculate on specific markets. There is no need to have access to millions of dollars for this investing method, as it accommodates anyone’s financial capabilities.

For those who want to invest in Bitcoin, using Vaultoro is a great way to do so. Our platform accommodates recurring purchases across many different markets, allowing you to create a robust and diversified portfolio. By tapping into different markets capable of rising in value, the profits can then be used to increase positions in the other markets. 

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