Dollar cost averaging, or ‘DCA’, refers to the automatic process of investing a certain amount of money in a cryptocurrency periodically.
Dollar cost averaging (DCA) is an investment strategy whereby the investor specific that a certain monetary amount be utilized to invest in a target asset, such as a cryptocurrency or stock, in set intervals. The way that this works is that the investor will allocate a certain amount of capital towards a certain investment, but instead of investing the amount all at once, it will be split up into equal amounts to cover scheduled payments over a certain period of time.
The purpose of doing so is to attempt getting a good median value for each asset of the overall amount that your purchased.
For instance, if a person were to have allocated $10,000 USD towards investing in Bitcoin (BTC) in October 2021, they could have opted to invest the whole amount in one go, but they decided that since the market was a bear market, they did not want to risk its being a bubble and so decided to divide the $10,000 USD into 10 x $,1000 USD and instead purchase BTC on the 10th of each month for the next 10 months.
This means that over the next ten months the investor purchases the following:
|Month||$1 BTC to USD||$1,000 USD to BTC|
Therefore, from this we see that if the investor had bought $10,000 USD worth of BTC in October 2021, then they would have gotten 0. 18257503843 BTC. But, since they decided to spread out the investment period, they wound up getting 0.46909642733 BTC. This is nearly three times the amount of BTC than they would have initially received. Therefore, although this method requires patience, it is often seen as being the safest method of investing in an asset, as it factors in price volatility as well. It also means that the amount of BTC accrued over each 10-month period will vary. Of course, the reverse could also be true where the price declines each month so that the investor will actually have fewer BTC at the end of the period than if they had simply invested the lump sum.