Bitcoin DCA: A Long-Term Investment Strategy


In the investment market, there is a famous saying that “time in market is better than timing the market”. What this sentence emphasizes is that rather than guessing ‘timing’, the lowest or highest price, staying in the market is more important to increasing return on investment.

In the investment market, there is a famous saying that “time in market is better than timing the market”. What this sentence emphasizes is that rather than guessing ‘timing’, the lowest or highest price, staying in the market is more important to increasing return on investment.

It is well known that long-term investors have higher returns than short or medium-term investors who try to buy assets cheap and sell them when they are high. So, how to best increase profits while staying in the market long-term? A typical example is the “Dollar Cost Average (DCA)” strategy developed by Warren Buffet, known as the “master of value investing”.

What is DCA?

Dollar Cost Average (DCA) is a savings investment method in which a certain amount of money is invested at regular intervals over a fixed period of time. Since the crypto market is notorious for its high volatility, DCA is attracting attention as a low-risk investment strategy that can increase profitability while reducing the time needed for investment decisions.

DCA is not a new strategy. In the stock market, DCA has been used for a long time and, in fact, Warren Buffett supports it as one method of value investing.

DCA is the opposite of a timing strategy, where large sum investments are made at specific moments to buy low and sell high. Investing a lot of money at once at the right time will maximize returns, but it also carries the maximum risk. By contrast, DCA is considered a strategy that increases profit by avoiding large losses.

The advantages of DCA: Minimize investment time and risk of loss

The main feature of DCA is that it averages out the investment amount because the investor buys at both market highs and lows. Compared to a strategy that relies on timing, money is invested in smaller increments over a longer period, which reduces the risk of losing the entire investment.

Also, there is no need to be swayed even by a sharp decline in the market. In fact, a downturn can even be good news to investors, because buying during this period lowers the average purchase price.

DCA cuts out market noise and volatility. In general, cryptocurrency investors are prone to selling due to Fear, Uncertainty and Doubt (FUD) in a bear market and buy due to Fear of Missing Out (FOMO) in a bull market. With FOMO, investors worry that they will be the only ones left out in a bull run, which leads to irrational buying. Then, when a downturn comes, they are at higher risk of feeling psychological and financial pressure.

DCA, on the other hand, is more of a “set and forget” type of investment. Timing is not important. Instead of wasting time watching price trends every day, investors can spend time learning a new hobby or building knowledge in other ways.

Does DCA offer high returns?

DCA not only cuts down the time needed to make investment decisions. It has also been shown to outperform timing strategies both in terms of bull market returns and bear market losses.

Let’s suppose an investor with a monthly income of $4,000 decided to invest 10% of their income in Bitcoin at the end of 2020, with investments spread out in weekly increments. If the investor stuck to the method of buying $100 in Bitcoin every week for a year, the total amount invested would be $5,300.

According to calculations by crypto portfolio management company Shrimpy, the investment would have grown to $7,000, returning about 32% in profit. Had the investor started in 2021, the same $5,300 would have grown to $10,782, yielding a 103% return. Now, if the DCA strategy was continued for one more year, these around $10,700 would record 272% profit, climbing to $39,147.

But what would have happened had the investor started DCA at the highest price and then entered a bear market? Here, DCA acts as a way of reducing losses during the downturn. At one point, Bitcoin fell 57% from $47,000 to $20,000. A DCA investment strategy would have reduced losses to 40% during this period.

“Volatility is a huge block for most people wanting to enter the crypto space”, said Darshan Bathija, CEO and Co-Founder of Vauld. “Dollar-cost averaging is the best way to start investing in crypto”. A famous quote by billionaire investor Charlie Munger is that “the big money is not in the buying and selling, but in the waiting”.

How to do DCA?

To follow a DCA strategy, investors need to decide which assets to invest in, and with what investment amount over what period. Then, investors need to regularly invest a predetermined amount at set intervals until they reach the end of their planned investment period. Because the exchange charges a fee for each transaction, investors need to pick the investment interval wisely. For example, they could consider a monthly or bi-monthly interval.

When carrying out such a DCA strategy, storing crypto in Cefi services such as Haru Invest can be a way to maximize its effectiveness. Haru Invest provides 7-15% APR when depositing cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), and Tether (USDT), depending on the lockup period.

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