Why DCA Is the Best Way to Invest in Bitcoin?
"I think I can, I think I can..." DCA is like the little engine that could. How can it set you up for success?
Dollar Cost Averaging (DCA) is an investment strategy where you invest a fixed amount of money at regular intervals e.g. weekly, monthly, or quarterly in a specific asset regardless of the market price. This investment strategy aims at averaging out the entry price into the asset in question mitigating the impact of market volatility.
Key Points about DCA Investment Strategy
Fixed amounts
For DCA to work well, you have to invest the same amount of money each time you buy but not the same number of shares. A proper funding model has to be developed to ensure the buy-ins are honored.
Regular intervals
The investor has to set regular investment intervals where they enter the market regardless of the market cycles. It can be weekly, bi-weekly, monthly, or quarterly. However, the intervals need to be reasonable enough (not very close or far apart) to take maximum advantage on market movements.
Market fluctuation benefit
Market fluctuation is the investor’s friend in this investment method. When the prices dip, you buy more shares at the same amount than when the market price is higher.
Why DCA?
Dollar Cost Averaging has multiple benefits. Some of them include:
Reduced Risk
Dollar Cost Averaging captures the average market price over time which in turn reduces the risk of buying a lump sum at higher prices. That means in case of a market shake-up, investors can still make profits over time.
Easier to couple with long-term hodling
For Dollar Cost Averaging to work well, it needs consistent investing over a long time. Over time, the invested sum accrues and starts appreciating. As such, it creates a culture of holding for long thus making maximum profits from the given asset.
Creates investing consistency
Investing a specific amount of money in an asset over time in regular intervals creates consistency. The investor gets used to budgeting for that investment which makes it easy for them to keep up with the trend.
Less capital upfront
Since DCA requires regular investment over time. The investor doesn’t necessarily require to invest huge amounts of money. That makes it easier for everyone to get into an investment comfortably.
Minimizes emotional investing
Emotional investing like FOMO and FUDs makes the markets risky to investors. DCA eradicates this issue since an investor is assured that they are investing in the best market prices thus do not have to invest under pressure.
Why use DCA in Bitcoin Investing?
Your fiat is always losing its purchasing power and Central Banks are always diluting it further as they print new notes. This was the main reason Bitcoin was first introduced back in the 2008 financial crisis.
For instance, in the US, from 2020-2023, the Federal Reserve printed nearly 80% of ALL US Dollars in existence
Start of 2020: ~$4T in circulation.
2023: $19T in circulation, a +375% jump in 3yrs
That means the money in savings accounts lose its value day by day.
