What is Dollar-Cost Averaging?
Dollar-Cost Averaging, or DCA, is a savings strategy where you buy a small amount of an asset repeatedly and consistently, regardless of the asset's price. As long as you believe in bitcoin's long-term prospects, DCA lets you accumulate bitcoin stress free.
Why traditional investors like DCA
Investors like DCA for traditional assets like stocks because data suggest that it results in a low risk/reward ratio.
DCA is the best way to overcome the quirks of the human mind. It makes it easier to convince yourself to start saving, and it cultivates a habit of responsibility with money, which pays off in many ways. Here are some of them:
Build healthy habits
It's important to have financial goals, but without a system in place to reach those goals, you will almost certainly fail to reach them.
Setting up a saving system that runs automatically will build the healthy financial habits that can make your financial dreams a reality.
Pay yourself first, thank yourself later.
Start small and grow
Using DCA avoids a large up-front commitment that can feel – and in fact be – risky. When you DCA, your initial purchases and overall commitment feels small and manageable, giving you the courage and motivation to get started, yet still resulting in significant results over the long term.
Stick to a plan
Faced with having to decide how much to save, and when to save, the lack of clarity causes many people to put off saving altogether. This is a terrible tragedy, and the worst part is, it's the result of a psychological trick that is unbelievably costly.
Using software that automatically executes your DCA plan makes it much more likely that your plan will last
Why DCA works well for bitcoin
For newcomers to bitcoin, there are several additional benefits of using DCA.
Bitcoin opens up an exciting and fascinating new world of money – but one that can be intimidating at first. DCA can take enough uncertainty out of bitcoin to make you feel comfortable enough to take that crucial first step of your bitcoin journey.
Avoid emotional stress
Emotions can get in the way of executing well-considered, rational financial strategies. DCA reduces emotion because it runs without requiring you to watch day-to-day price volatility.
Minimize volatility risk
Volatility risk is the risk that you'll convert a large amount of dollars into bitcoin during a time when bitcoin's price is high. DCA acts as a smoothing function on the price of bitcoin, because conversions are made in small amounts over long periods of time.
Learn by doing
Learning how to use bitcoin can feel daunting. A bitcoin savings strategy with DCA lets you get started quickly and with low commitment, giving you the time to learn about how bitcoin works.
How often should you buy bitcoin with DCA, and in what amounts?
That depends on your financial situation. Coinbits does not offer financial advice. However, we provide you the tools and flexibility to set up DCA according to your personal financial situation and goals.
If you have a lump sum to convert to bitcoin, should you still use DCA?
Most people who save in bitcoin using DCA do not have one lump sum that they want to convert to bitcoin. Instead, they use some of their cashflow to buy smaller amounts over time.
However, if you do have a lump sum that you want to convert to bitcoin, talk to your financial advisor about how to manage your entry into the bitcoin market. You may also be able to utilize our Coinbits Reserve service to your advantage.