Dollar Cost Averaging Bitcoin

stratus

(Updated April 2024) In a perfect world we would all love to buy low and sell high.  

Instead of trying to time the market with a lump sum investment, an easy way for beginners to get started investing in Bitcoin is through a strategy called Dollar Cost Averaging (DCA). 

If you’re not a professional trader, DCA is a great way to automatically invest a fixed amount of money at regular intervals over the long term into a crypto like Bitcoin.  

DCA can be a great strategy for investors who are in it for the long haul and don’t want to deal with FOMO, FUD, or anxiety trying to time a volatile market.  

Auto-buys help maintain a consistent investment schedule without having to spend your time analyzing and timing the market.

What is Dollar-Cost Averaging?

Dollar-cost averaging (DCA) is a long term crypto investment strategy for buying (or selling) a fixed dollar amount of an asset at regular intervals (daily, weekly or monthly).

In crypto, DCA is typically an accumulation strategy for Bitcoin where you automatically buy smaller amounts of BTC, regardless of the price, rather than making a lump sum investment.  

By spreading out your investments over time, you should pay less fiat for the crypto asset while acquiring more BTC than if you tried to time the market with a one time purchase.  

Breaking up your investment into smaller purchases made at regular intervals can reduce your exposure to volatility and lower your average cost to acquire the asset.  

In crypto, the saying goes, “Time in the market is better than timing the market.”

Dollar Cost Averaging Example:

Chad and Karen are newlyweds and plan to purchase a home and start a family over the next few years.  They decided to each invest $2,600 in Bitcoin over the next year because they are already maxing out their 401k with securities.  

On May 8, 2022 when they set up their exchange accounts, the price of BTC was $30,076.90

Chad:  He read an article that Bitcoin was going to $100k and bought his $2,600 worth of BTC.

Karen: She read the same article but decided to set up a weekly auto-buy of $50 in BTC.  

One year later, on May 8, 2023 they had each invested a total amount of $2,600 but their results were very different.    

Chad: His Account Value is $2,427.91 (-6.62%) resulting in a LOSS of -$172.09

Karen: Her Account Value is $3,375.32 (+29.82%) realizing a $775.32 PROFIT.

Due to price of BTC moving up and down over the course of the year, Karen was able to realize an Average Price (BTC) of $21,634.70 while Chad’s AP was his purchase price of $30,076.90

DCA is not about getting rich quick, it’s about getting rich later.  

Here’s our Bitcoin DCA Calculator so you can trust, but verify.

Why is Dollar Cost Averaging Bitcoin a Good Strategy?

Dollar Cost Averaging into Bitcoin has been my primary investment strategy since 2017.  I didn’t take the orange pill until a few years later but I believed that over the long run, Bitcoin would go up in value.  

Since my first investment, the market has cycled through All Time Highs in 2021, a retracement, and black swan events like the overnight implosion of market makers like FTX.  

Along the way, I bought a regular amount of BTC removing any decisions based on fear, uncertainty, or doubt.  Recurring auto-buys take all of the emotion out of investing.

I saved my dry powder for larger lump sum investments after significant market declines like:

  • 2020 – February BTC at $10,500 dropped to a low of $3,000 in March.  
  • 2021 – BTC fell from ATH of $63,558 to $29,796
  • 2022 – Bitcoin fell 22% in one day after FTX news

This is called the Hybrid DCA Strategy and works best for people (like me) who want the assurance of recurring buys + actively investing based on market conditions.  

For example, you could deploy 75% of your earmarked investment dollars for the weekly auto-buy and keep the other 25% liquid to buy big dips (BTC down 15-25%). 

As a Bitcoin maximalist, I believe the price of BTC will rise over the long run.

Having a weekly recurring auto-buy removes any FOMO and frees up passive investors to not have to solely rely on their gut.  Imagine dropping your life savings into BTC in 2021 at $60k and watching it get halved just a few months later.  

Dollar Cost Averaging is a hedge against downside risk. So, even if a one time lump sum investment outperforms a DCA strategy, given crypto’s volatility you can remove the guesswork to feel like a disciplined trader by hedging your position. 

What are the Benefits of Dollar-Cost Averaging?

The main benefits of a DCA strategy for crypto are:

  • Easy for Beginners : Crypto noobs love the DCA auto-buy investment strategy for Bitcoin because you don’t need expert financial knowledge to use this strategy effectively.  
  • Automation: Auto-buys are simple to set up and eliminate the need to worry about whether it’s the right time to invest or not. 
  • Lower Investment Cost: Dollar cost averaging can lower the average amount you spend on investments. Remember Chad and Karen?  Karen’s avg. price was 28% lower than Chad because she dollar cost averaged her Bitcoin.
  • Long-term Strategy: DCA benefits those who believe that an asset’s prices will increase in the long run by minimizing risk of buying a lump sum too high.
  • Consistency and Discipline: A DCA strategy ensures you are accumulating regularly which trains you to be a disciplined investor building long term wealth.
    Timing The Market: Recurring buys remove the need for investors to time the market perfectly giving you flexibility to keep all options open including new opportunities.
  • Lower Your Market Risk:  By spreading your investments over time, you can reduce the volatility effects of price swings and smooth out peaks and valleys.
  • Price Protection:  A lump sum buy locks you into a fixed entry point.  When the price dips with DCA, you will automatically buy MORE of the underlying asset bringing down your average cost.  
  • Remove Emotional Bias: An automatic recurring buy removes hasty decisions, like FOMO, and can regulate anxiety often caused by short-term dips in price or FUD.   
  • DCA Saves Time: Set it and forget it.  We always recommend DYOR, but there’s no need to pour over charts if you believe the coin is going up in the long term.

Automatically purchasing regular intervals of a Bitcoin (or any crypto) can help you catch different prices while removing all fear, uncertainty and doubt about mistiming the market because DCA is a passive, disciplined crypto trading strategy.  

What are the Drawbacks of Dollar-Cost Averaging?

Dollar cost averaging is a low risk, long term crypto investment strategy.  It’s perfect for me, but auto-buys may not be the right strategy for you.  

Here are a few points worth considering on the disadvantages of recurring buys:

  • Lower Returns:  A DCA strategy, over time, usually includes buying assets at any stage, whether it be stable, depreciating, or appreciating.  You may miss out on higher returns with dollar cost averaging if the market is on a bull run.  
  • Cash Drag/Capital Efficiency:  If you have a $10k lump sum on hand, and decide to spread out your investment over time you negate the value unless you park it in interest-bearing accounts.  
  • Wrong Coin to DCA: Recurring buys work best for crypto if the market for the coin is volatile and may not be the best choice for stable assets.  
  • (Potentially) Higher Fees – Most exchanges charge fees for every completed order.  DCA will by nature have more order quantity than making a one time lump sum buy. 
    • A recurring buy using the Stratus bot + your Coinbase account has $0 fees.  Try our Bitcoin DCA Bot today!

How does Dollar-Cost Averaging work?

Dollar-cost averaging works by investing the same amount of money into an asset on a regular basis, regardless of the asset’s price. For example, you could invest $100 in Bitcoin once a month, irrespective of market volatility.  buying when the market is down gives you the opportunity to land potentially profitable assets

There are a few simple steps to set up a DCA order:

  1. Pick an asset or coin. 
    • Choosing the right coin is a matter of personal preference and can consume a lot of time Doing Your Own Research (DYOR).  Large market cap coins like Bitcoin or Ether are stable but still offer considerable upside over the long run.
  2. Decide how much to invest.
    • They say invest 1%-4% of your investment portfolio into crypto.  I say meh.  Invest whatever you’re comfortable losing.  I like to keep some dry powder on reserve in interest bearing or DEX yield accounts to make bigger lump buys if there is a big dip.  
  3. Choose the Frequency of your DCA orders.
    • Most exchange providers offer monthly, weekly or even daily frequency.  They will also charge you fees for every order, so you’ll pay more in fees over the long run for weekly orders compared to monthly recurring buys.  The Stratus DCA bot helps you avoid paying fees on Coinbase.  Given the volatility bitcoin can experience over the course of a month coupled with a long term investment strategy, my choice is always a WEEKLY recurring Bitcoin DCA buy.  
  4. Find the best service that allows recurring orders.
    • Most exchange providers offer monthly, weekly or even daily frequency.  They will also charge you fees for every order, so you’ll pay more in fees over the long run for weekly orders compared to monthly recurring buys.  The Stratus DCA bot helps you avoid paying fees on Coinbase.  Given the volatility bitcoin can experience over the course of a month coupled with a long term investment strategy, my choice is always a WEEKLY recurring Bitcoin DCA buy.  
    • Using a Centralized Exchange (CEX), like Coinbase, rather than buying from a wallet app and withdraw to cold storage once per month is a great foundation to a UTXO management and consolidation strategy helping to save future increases for Bitcoin Network transaction fees.
  5. Determine Hot and Cold Wallet Storage strategy. 

A Dollar Cost Averaging strategy is a hedge against buying at an all time high (ATH) and watching the value of your portfolio turn negative if/when there is a reversal and correction in the price.  

This passive investment strategy is easy to set up and can be funded by a personal budget allocation even if your day job isn’t high income.  A small weekly investment of $25 or $50 in BTC can be gleaned from your existing personal budget by cutting down your fancy coffee habit or eating out one less night.  IYKYK

With dollar-cost averaging crypto you’ll be acquiring more Bitcoin even during ups and downs because your recurring buys lowered your average cost of acquiring the asset.  

Who Should Use Dollar-Cost Averaging?

 PEW Research reports 16% of US citizens have invested in crypto.  There’s still a long way to go as crypto adoption increases which, theoretically, should lead to price increases as demand outpaces supply and we approach the next Bitcoin halving.  

Volatility is the rate at which the price of a coin moves up or down in a period of time.  Crypto is considered a volatile asset as prices often move significantly.  

Assuming the 84% of Americans who don’t own crypto are NOT professional investors with unlimited time to spend analyzing market maturity and liquidity trends, a Dollar Cost Averaging strategy may be for you.  

The DCA strategy is one of the safest crypto strategies for new investors who don’t have the experience or expertise to time their buys.

Even long term investors can benefit from DCA recurring buys when they don’t have the bandwidth to time their orders based on market conditions and price swings.  

Imagine first discovering Bitcoin in August 2021 when it was at $46k and not pulling the trigger for a few months while you saved.  The price ran up to an ATH of ~$68k in November when you decided to go all in and invest before it went any higher.  You would have gotten wrekt by the forthcoming crypto winter of 2022. 

A Recurring DCA buy started in August 2021 would still be in the red but your average cost basis of $57k (vs. $68k) by dollar cost averaging would have been the safer play rather than risking all of your money on a lump sum purchase.  

I’m bullish on Bitcoin over the long run even though bear markets are best for DCA.  

I’m too busy focusing on family and running a business to spend time on daily market analysis. 

An automated, weekly recurring Bitcoin purchase is the best investment strategy for my long term crypto goals (and mental health) compared to investing a large lump sum all at once.  

Personally, I love seeing the price of BTC go down.  My weekly buys are buying more Satoshis (Sats) than they purchased last week.  Sats are the smallest unit of Bitcoin equal to 0.00000001 BTC and with fixed supply of 21 million BTC.  Whole coiners will be a rare breed and Bitcoin quantity will be expressed more often as sats.  Kinda like measuring your car’s mileage in light-years and your body weight in neutron stars.

I have a long term view for Bitcoin and down trends are an opportunity to stack more sats with a DCA recurring buy. 

Frequently Asked Questions

What Does Dollar Cost Averaging Mean In Crypto?

  • Dollar cost averaging in Crypto is an investment strategy that deploys a fixed amount of capital to purchase assets on a recurring schedule taking advantage of price swings.

Is Dollar Cost Averaging Good For Crypto?

  • Dollar Cost Averaging is easy to set up and an effective investment strategy for the crypto industry because of market volatility.

DCA Auto-buy Crypto Strategy

  • If you believe that your favorite coins (BTC, ETH) will increase in value over the long term AND will experience volatile price movements along the way, Dollar Cost Averaging may be a great strategy for your investment criteria compared with making a lump sum investment.

How do you calculate the average dollar cost?

How often should you invest in dollar cost averaging?

  • Weekly recurring auto-buys are the most common frequency for DCA given crypto’s volatility and exchange transaction fees.

When Should You Stop Dollar Cost Averaging?

  • When you reach your target asset allocation for the asset.  (ie – when Bitcoin becomes 15% of your portfolio).  Alternatively, you can rebalance your portfolio raising/lowering your DCA position.  Personally, I’m never turning off my recurring buy unless I can’t afford it anymore.   

Is There A Dollar Cost Averaging Crypto App?

What’s The Best Day To DCA Crypto?

  • Historically Saturday and Sunday have the lowest prices while Fridays are on average more expensive.  DCA is a passive auto-buy with a long term time horizon.  Try Stratus’ Smart DCA bot which optimizes the days of the week to execute your DCA order.  

What are the 4 cycles of the crypto market

  • The 4 cycles of the crypto market are Accumulation, Markup, Distribution, and Markdown.  At the bottom of the market, Accumulation begins before the asset sees a Markup when more buyers enter.  The early accumulators will take profits during Distribution which could lead to sellers overpowering buyers in Markdown causing prices to fall. 

Is lump-sum investing better than dollar cost averaging for crypto?

  • Lump sum investing to buy the dips in conjunction with a recurring DCA auto-buy is a strategy that will help you smooth volatility and capitalize on a markdown.

Note: Stratus does NOT provide investment, legal or tax advice.  All information in this article is for educational purposes and should not be interpreted as investment, legal or tax advice.  The opinions expressed are those of the author for informational purposes and neither Stratus nor the author are liable for any errors, inaccuracies or omissions.  Digital assets, such as cryptocurrencies or decentralized finance, present unique risks for investors.  For investment, legal, tax, or other financial guidance you should consult your own advisor.