What is Dollar Cost Averaging?

in #bitcoin2 years ago (edited)

When you are investing in Bitcoin there are a number of strategies you can employ to building your Bitcoin stack. You could try to time the market for that perfect sale price. The problem with that strategy is timing the market for dips. If you're not careful you can overpay for a lump sum purchase. This is where the strategy of dollar-cost averaging your input price can save you lots of headaches.

Dollar Cost Averaging

Dollar cost averaging, also known as DCA, is a strategy of investing into Bitcoin over a longer time period. Instead of dumping all of your cash for Bitcoin at one time the goal of DCA is to space your purchases out periodically. This gives you a more averaged price over a period of time compared to just the price of one single purchase.

Simple and Easy

Bitcoin is often described as complex. Using a DCA approach you are able to offset a lot of that complexity after your initial setup. The exchange will begin to regularly pull the assigned amount from your bank and purchase Bitcoin for you. From that point you can simply view it as any other bill that is regularly pulled from your bank account.

Trading is for Traders

Traders spend years perfecting their trade. They are uniquely able to review market conditions to determine and time the right times for participating in markets. Trading is not a skill that most people are talented with. This is another reason to consider dollar cost averaging into Bitcoin. You take the need for finding the perfect price out of the equation and instead just average yourself in.

Stop The Fear Of Missing Out

It's very easy to see the rising price of Bitcoin and feel like you are missing out. This fear of missing out is also known as FOMO. When you FOMO in you can easily miss the rest of the dip leaving extra coin on the table. Using DCA you even out the average price of purchase. This gives you a better average market price that can often beat what you would have grabbed when you thought you were missing out.

Lower Risk

If you would, imagine the concept of dipping your toe in water to check its temperature as a DCA. If you compare this to jumping into the water full force then you can see the DCA option has a much lower risk profile. You lower your initial exposure and you also gain the ability to dip in at a more sustained pace. Just as the lower exposure to the water allows your body to adapt to the temperature, DCA allows you to adapt your average cost basis.

Longer Term Thinking

The longer your time horizon is for Bitcoin the better a DCA strategy can work for you. This is because you adjust your entry point to Bitcoin as your adoption of the network grows. You have less worries about day to day unpredictability of the price while focusing on the longer term vision of a Bitcoin future.

Where Can I DCA Into Bitcoin?

There are a number of exchanges that support setting you up to be able to DCA into Bitcoin. Nearly all of the major exchanges are accounted for when looking for a partner that supports recurring purchases for DCA. You can use River Financial, Cash App or Strike. My personal favorite is Swan Bitcoin. Swan allows you to upload your wallet's xpub and receive Bitcoin directly to your cold storage solution. It's a good combination that gives you the safety of cold storage and simplicity of dollar cost averaging.

Getting setup is normally a fairly simple process of linking your bank to the exchange. From there you just define your desired purchase amount and regularity. If you have questions most exchanges will be happy to assist you. If I could ever help you with your questions please consider contacting me. I'd be happy to sit down with you while you set up your accounts to ensure you are all set to get regular purchases of Bitcoin.



Posted from my blog with Exxp : https://patrickulrich.com/2022/06/16/what-is-dollar-cost-averaging/


Let's stay connected!


| | | |

Join my fanbase with Hive.vote