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In the crypto world, there are various strategies employed to make the best out of your investment. Dollar-Cost Averaging is one of those many strategies. In this article, I’ll be telling you all about DCA, its benefits, how to use it, its risks and more.
What Is Dollar-Cost Averaging?
DCA is simply an investing strategy where an investor invests a total sum of money in small increments over some time instead of investing all at once.
One of the major downsides of the crypto market is its volatility, and one major question asked by people starting in crypto is “when should I buy?”
To be honest, there’s no easy way to time the crypto market. When you try to do this, it can be time-consuming and might even result in a loss.
Using the DCA strategy, you have to maintain consistency. You can invest a particular amount of money every week or even monthly.
As long as you repeat the purchase process repeatedly over a while, you are employing the strategy correctly.
How to use dollar-cost averaging in crypto
To use the DCA strategy, you have to decide on a specific amount of money you wish to invest into your choice of crypto, over some time.
Whether the market falls or rises, you keep investing your money till you reach your target time.
The biggest hurdle you might face using this method is consistency but be assured that it will be worth it in the long run. You have to stay committed to achieving your set goal.
Once you start seeing profits, it might be tempting to withdraw your money, but you have to stick to your plan to earn the most and minimize your risk.
Benefits of DCA
It is an effective way of owning cryptocurrency and not having to deal with timing the market.
To make the most out of this method, you have to pick an affordable amount, you can invest regularly, and you can invest without looking back for a while.
Using this method, even if the market falls, you can continue investing.
Risks of DCA
Although the DCA strategy is recommended by lots of crypto experts, you need to know that it is not guaranteed that there will be a huge increase in the coin value over a certain period of time.
While dollar-cost averaging helps alleviate risk if the market crashes, less risk can mean less reward. In this way, dollar-cost averaging is not a strategy to maximize an investment return, but more a risk management strategy.
You may also have to pay more fees over the long term using this strategy. Crypto trading platforms charge fees when buying, selling, or trading crypto. Exchange fees are often a percentage of your trade and are charged per transaction.
For a long-term crypto investor, slow and steady is the best way to go. DCA allows you to invest in crypto little by little over a period of time, instead of investing a large sum of money at once.
With this strategy, you do not have to worry about market volatility and it takes your mind off the ups and downs.