What is Dollar Cost Averaging in Crypto?
DCA — Dollar Cost Averaging. ‘Dakka!’ The mature investors’ credo. The simple act of fixed investment. The not so simple behaviour of patience and consistency. For many, DCA is the mantra that takes them to the moon. A quiet belief and enduring fortitude in the face of the most volatile market in world history.
Dollar cost averaging is the practice of investing a fixed amount (in this case, of dollars) on a periodic, scheduled basis with no regard for the current price of the asset invested in. In simple terms, on the 1st of the month, you buy $200 of $NOM, at $50c, $90c, $2, or $100 and at -24%, +22% and +2400%. You don’t wait a day. You don’t buy the dip. You just buy.
The habit is reinforced by another old adage, ‘Time in the market beats timing the market.’ If you’re perennially chasing highs and lows, your strategy swinging as wildly as the market itself — you leave yourself open to risk. You are, effectively, gambling more and investing less. True investment success is about time, patience and belief — yes, even in crypto. Following a rigid DCA strategy enforces that behaviour.
The side benefit is massively reducing your blood pressure. Shoving significant portions of your network on the crypto roulette wheel is exhilarating, but exhausting. Fiddling with your portfolio, buy sizes, and trying to get it ‘just right’ is a short route to despair. Offloading coins just as they pump 10x, with more tech released everyday, is enough to give anyone regret. DCA lets you close the door on the heart-pounding thrill of it all, and return to a truer, more pure belief in the market as a whole.
And it works. DCA is often touted as the single best way to be involved in any market. The Sage of Omaha, Warren Buffett — the posterboy for the TradFi investment world — is a big fan. Even in crypto, many advise that the more volatile the market, the more dollar cost averaging in your favourite cryptocurrencies makes sense. Sure, not all will make it, but the ones that do make it all worthwhile.
As such, many take DCA in crypto to heart. The slight issue is they get the wrong idea. ‘Should I DCA into the dip?’ is not a logically coherent sentence. ‘I upped my DCA this month because I believe Bitcoin will keep going up’ is effectively missing the point of the strategy. Yet these are questions and statements you hear often. No. Don’t just DCA anything, just DCA — that’s the beauty of it.
What crypto those dollars go into, however, is of course part of the fun. If you see your ‘DCA’ allocation in the crypto market as a whole, not just a specific coin. Building a wide, varied, multi-chain portfolio using $200 a month is a fun, collectors approach to crypto that pays off in spades if you stick to it.
Rumour is ONEX contributors will bring DCA functionality into the Onomy Nexus — set one recurrent market buy order and forget about it! Until you turn it off that is.
