DCA
DCA, or dollar-cost averaging, is a simple investing and trading strategy that involves investing a fixed amount of money in an asset like stocks or cryptocurrencies at regular intervals over a period of time.
Rather than trying to time the market by buying when prices are low and selling when prices are high, DCA involves buying consistently, whether prices are rising or falling. This helps spread your investments and can reduce your average purchase cost, which reduces the impact of market fluctuations on your overall investments. It's like taking small, steady steps toward your financial goals, rather than trying to take one big step all at once.
Let's take the price of Bitcoin as an example
Diving deeper into how DCA works:
Let's say you decide to invest $100 per week in buying Bitcoin for a month.
Week 1: The price of Bitcoin is $10,000 per BTC. With your $100, you can buy 0.01 BTC.
Week 2: The price drops to $8,000 per BTC. Now you can buy 0.0125 BTC with your $100.
Week 3: The price climbs to $12,000 per BTC. With $100, you can buy 0.0083 BTC.
Week 4: The price drops to $9,000 per BTC. With $100, you can buy 0.0111 BTC.
Investing $100 per week, you have accumulated a total of 0.0429 BTC after four weeks.
Now, let’s calculate the average price per Bitcoin:
Total investment amount: $400
Total Bitcoin purchases: 0.0429 BTC
Average price per Bitcoin: $400 / 0.0429 BTC ≈ $9,316.69 per BTC
Although the price of Bitcoin fluctuated this month, the average price per BTC you purchased through DCA was approximately $9,316.69. This shows that DCA can help you cope with Bitcoin’s price volatility and may produce a more favorable average price over time.
