What is a DCA ?
Dollar cost averaging (DCA) refers to an investment concept where you buy a fixed dollar/stable coin amount of a token on a regular basis, regardless of the token price. In this manner, DCA takes advantage of the token price movements in the crypto market on a longer horizon: you're basically betting on the long term success of the token, regardless of the short term volatility.
By keeping the amount per period stable, you will buy more tokens when prices are lower and fewer token when prices are higher. Over time, as you accumulate more token when prices are cheaper, you are able to potentially lower the average purchase price per token.
Other benefits of DCA stem from its understanding of people's behaviour towards investing, among which is the fear for losses and FOMO (Fear of Missing Out), both of which can bring to irrational behaviours and further losses / missing out on opportunities.
This is where the simple structure of DCA can help reduce such fears. By investing an equal amount of money/stable coin into tokens on a regular basis, you are able to steadily build a position without having to think too much of the short term volatility, making the idea of investing more palatable and less stressful.
Once you have made the decision to invest, typically the next concern is the timing of the investment.
DCA provides a way to overcome such emotional hurdles. By gradually investing (on fixed time period) in the crypto market, DCA places smaller amounts at risk at a time. Hence any sudden drop in token prices will not cause as huge a loss as if you had your entire lump-sum invested.
The simplicity of DCA helps you overcome certain recognized behaviour which would otherwise have kept you from investing. It offers an affordable, sustainable and comfortable way for new investors to ease into the crypto market without incurring the anxiety that comes from having too much invested in a short period of time. It is thus one of the more popular choice across all categories of investors, new investors, experienced investors and even institutional investors, especially for investors who may not have the time to actively monitor the performance of the crypto market (which runs 24/7).
See how DCA has been profitable in the past (past performance is not indicative and does not guarantee future returns):
Last modified 7mo ago