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Bitcoin is still the most significant digital currency that has a market capitalization of more than $850 billion. Its value increased in early 2021 to smash the mark of $60,000 and also set an all time high at $64,395. The recent spike of Bitcoin can be compared to the bull run of 2017, where the price of Bitcoin eventually decreased hugely. It is the nature of all digital currencies, but they still offer great chances to earn money. For this financial technology, experts are still devising strategies for investment like the DCA strategy. In this article, we will understand the idea of Bitcoin DCA (Dollar Cost Average).
Bitcoin dollar cost averaging allows investors to mitigate the effect of fluctuations and protect the equity of Bitcoin. However, if you are ready to take risks and are considering BTC it is fair to understand Bitcoin DCA.
What Is Dollar Cost Averaging?
If you are a BTC enthusiast who enjoys discussing that enough and probably owns some, then you may have some questions regarding the digital assets. Many people are still skeptical about digital currencies and are still doubtful about investing in them. Whether they should invest in BTC or if it is the right time to do so is among the common questions among first-time investors, more so during the scenario of bull markets.
However, we are not all magicians, so we can never know exactly the right time to invest in BTC. For that reason, the wise investors came up with dollar-cost averaging to smooth out fluctuations and make digital currency investment more straightforward. DCA (Dollar-Cost Averaging) itself is an investment strategy that is in digital currency but also operates for traditional investments.
Bitcoin dollar-cost averaging includes buying specific amounts of BTC at regular intervals to decrease the potential negative effect of investing at an inappropriate time. It is more of a long-term gathering strategy where the investor distributes the aimed investment amount into equal portions, then commits equal amounts at normal intervals.
For example, let us say you decide to invest $ 6,000 worth of BTC. Instead of committing the lump sum in one day, you can purchase $ 600 worth of BTC every month for the next ten months. As per the statistics done under DCA (dollar-cost averaging), an investor who makes Bitcoin DCA weekly or monthly BTC buys worth $ 5 in 2020 will make $ 692 from a complete investment of $ 275.
The investor will make a return of 150 percent and more. Even though it is not close to the yields that are recorded in the crypto area, the investor will be safeguarded from investing during the highs of BTC.
Why Use Bitcoin DCA (Dollar Cost Average)?
There are many investors who aim to make money from their BTC assets. However, the value fluctuations are most likely going to be a problem since you can never evaluate the best time to try your luck.
DCA is a strong strategy, primarily if you invest in BTC for the long term. It helps you ignore risking all your money, along with multiple other advantages. Along with that, there is a Bitcoin DCA calculator that helps you to measure your BTC investments.
Decreasing The Risk Of Wrong Timing
The primary benefit of using BTC DCA is that it allows you to avoid pulling all your investment lump sum at the wrong period, that is, at the time of an ATH. As stated earlier, market timing is among the most demanding things investors have to do, and so having an instrument that mitigates the risk is a good idea. This is a good difference between Bitcoin DCA vs lump sum investment.
This implies you can buy your Bitcoin sporadically, and the value will not always be at its highest. As such, this strategy will smooth your entry by dividing the risk of bad timing and, eventually, will advantage from Bitcoin downturns.
It Is Ideal For Small Investments
Many people are scared of the high volatility of BTC and will not risk investing large amounts of money upfront. However, dollar cost averaging offers the ideal chance to make small investments.
There are no limitations on the amount of BTC one can buy, so you could regularly purchase $5 worth of BTC. Even if you have a little salary, you can invest a little portion of the amount each month.
You Don’t Have To Track The Prices Of BTC
Many traders and investors spend much of their time on Bitcoin price charts to see Bitcoin price shifts and evaluate when to purchase or sell their holdings. It is a strained experience, and anyone can get instigated to act out of emotions.
DCA discards the requirement to keep an eye on the values as you invest on specific days at normal intervals. Some channels even enable their users to automate their investments by selecting the intervals, amount, and for how long.
Does Bitcoin DCA Have its Downsides?
While dollar-cost averaging is a great strategy for digital currency investment, it still has its disadvantages. First, it enables the user to avoid investing only during BTC highs, and however, at a similar time, you will not get an advantage from all BTC downturns. Some buys can even occur during Bitcoin’s ATHs.
Further, it could take even longer before you receive exposure to BTC. You invest continually but are not actively associated with tracking the behavior of the coin. DCA investors cannot completely benefit from a BTC bull market. The best move would be to make a lump sum buy at such a time as the value is most likely to rise.
However, dollar-cost averaging will only enable you to purchase a small portion, so smaller earnings during strong bull markets.
The Bottom Line
In a nutshell, Bitcoin DCA (dollar cost averaging) is a great investment strategy for starters who understand the behavior of the crypto coin. It can also be good for long-term investors and those who find it intimidating to track Bitcoin prices 24*7. The strategy inclines to maximize the downturns of the coin and minimize the risk of buying during ATHs, aiming that a digital currency value will eventually rise.
Frequently Asked Questions On Bitcoin DCA
1. What is DCA in Bitcoin?
Bitcoin DCA (Dollar-Cost Averaging) itself is an investment strategy that is in digital currency but also operates for traditional investments.
2. Does DCA work with Bitcoin?
DCA is a strong strategy, primarily if you invest in BTC for the long term. It helps you ignore risking all your money, along with multiple other advantages.
3. Is DCA a good strategy?
Many people are scared of the high volatility of BTC and will not risk investing large amounts of money upfront. However, dollar cost averaging offers the ideal chance to make small investments.
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