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What is Dollar-Cost Averaging (DCA) in crypto, and who should use it?

By Rain İçerik Ekibi - May 09, 7:00 PM

Crypto investing is one of the most thrilling experiences among any financial instrument, meaning that individuals with lower risk tolerance might find it challenging to choose a strategy that smoothens this often wild ride. Thankfully, Dollar-Cost Averaging (DCA) is here to help, and today, we’ll explain exactly how.

What is Dollar-Cost Averaging (DCA) in crypto

Dollar-Cost Averaging (DCA) is essentially a strategy that makes individuals invest their available funds over a given period of time instead of all at once. Thanks to this, risks of buying all-in right before a big drop are expected to be lowered, and chances are anticipated to be higher for averaging out the overall ups and downs in price. 

Let’s illustrate with an example: you are an individual that has $1,000 to invest in total. You could choose to invest all $1,000 at once, but then you likely risk getting in right before a dip that sometimes comes with scary losses. However, if you employ Dollar-Cost Averaging (DCA), you could break up your $1,000 into ten equal amounts, and invest $100 each consecutive month for the coming period. This way, you’ll likely buy assets when prices are low, and also when prices are high, which, in the end, could result in getting a better average buying price than if you poured all $1,000 in at once.

The potential benefits of DCA in crypto trading

As mentioned before, DCA is one of the most popular investing strategies among individuals with lower risk appetite thanks to its simple, yet powerful principles. With DCA, many argue that you get the best possible prices in the long run, and that stress is almost completely eliminated from crypto investing

 Also, DCA is one of the most effective, yet lowest skill cap investing strategies out there, which means that everyone can give it a try regardless of background or technical experience.

Possible drawbacks of DCA in crypto trading

As anything, DCA also has potential drawbacks when it comes to crypto investing. First off, while you’ll be buying at lower prices, you’ll also need to follow your strategy when values are high. This means that sometimes you’ll end up paying more for your assets than you would otherwise. Additionally, by not investing all your funds at once, it’s not just the dip that you’re potentially missing, but also the sudden increase in prices. If you’re after incredible triple-digit gains in a month, and you don’t mind risking it all, DCA might not be the best strategy for you.

Dollar-Cost Averaging (DCA) is an age-old investing strategy that enables individuals of all backgrounds to potentially even out the wildest rides of the crypto market. As it’s easy to follow and execute, DCA could be the optimal choice for those who’re just getting started and would like to do everything to lower the risks involved. On the other hand, those that aim for high returns fast should possibly avoid using DCA, as it only works over a longer period of time. 

Rain is a Crypto-Asset Services Provider headquartered in İstanbul. Rain provides services to its users at financial institution standards.

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