Dollar-Cost Averaging (DCA) Explained

This is a good time to learn about dollar cost average (DCA) investing. DCA is an investment strategy where investors allocate a fixed amount of money towards an asset periodically, regardless of the market price. It is a tool for building long-term wealth while minimizing the impact of short-term volatility. 

Traditional and crypto markets go through bull and bear cycles over a certain period of time. DCA investors keep investing periodically regardless and over a long enough period of time, capture a majority of the upside.

For example, if you invested $100 in bitcoin on a weekly basis starting December 2017 (the previous cycle market high) for three years, your total investment would be $16,300 by January 2021. However, the value of your investment would be around $65,000, a 300% ROI. But if you had invested all the money, $16,300 in December 2017, you would have lost close to $8,000 in the first two years as the market dipped. You would have recovered some losses in the third year as the price went up, but you would not have the same returns as if you DCA’d consistently throughout the period. And likely, you would have gotten scared off and sold your bitcoin when the market crashed.

Public market prices are driven by emotion and sentiment more than fundamentals. When there is fear, markets crash. When there is greed, markets rally. DCA removes the emotions from investing.