Industry News Rise in the Popularity of Dollar-Cost Averaging for Crypto Investors

Rise in the Popularity of Dollar-Cost Averaging for Crypto Investors

October 25, 2022

Locating the best trading strategy in 2022 has been, in many ways, like trying to find gold at a random place. While the theory behind that process is not without some scientific logic, the chances of actually striking gold in one’s backyard are very slim. Since the crypto crash of the summer of this year, many traders felt the same pain when they tried to figure out what would be the best means of investing or trading. With the crash turning into a full-blown crypto winter, the notion of further downward movement became even more possible, but without actually giving fuel to the bear trading community. Instead, the crypto prices stabilized somewhat, ending up in what could be described as crypto purgatory. 

In this perilous position, the chances of a big move either up or down seem less possible than prolonged vegetation in this diminished market spot. But, the money of the investors has to flow and reach some means of an investment approach that would include some chances of turning a profit. That is why more and more traders and investors, no matter if they are crypto whales or regular esports players who want to make some of their digital tokens work for them, turn to dollar-cost averaging. This approach seems like it has a lot to offer to its users, especially those who are struggling in the current frosty crypto environment. Yet, with this approach, known also as DCA, the chance of reaching crypto spring with a bigger digital currency portfolio seems very much possible.

The Concept of DCA

The concept of dollar-cost averaging and DCA, in general, has a lot of fans among digital currency users and those who are into the BTC network in particular. Here, many of those who regularly purchase and sell BTC tokens use the DCA concept in their strategy and for many, it has been a great opportunity to make money on a relatively regular and stable basis. 

That is why it has become a regular feature of social media discussions, forum posts, and all other places that house online dialogues about the digital currency markets. At these digital locations is where many DCA users initially figured out the same approach and began applying it as well. However, the same principle has a slightly different meaning when it is used outside of the digital currency community.

Dollar-Cost Averaging in Acton

In general, the DCA process includes the actions of selling or buying the same asset using the same amount in the USD. The process takes place using regular intervals and totally disregards the short-term price and its movements. That is a sharp construct to a process that involves the sharp selling or buying of lump sums when a trader decides that a market has either peaked or bottomed. But, the DCA approach should allow its users to pay less for an asset in terms of their USD expenditure and in the long run attain a hefty profit, or at least remain on the positive side of the equation. 

The strategy includes the simple process of accumulating BTC tokens during the bear market using regular intervals and a stable process of spending. The same accumulation should then be sold gradually as the bull market takes hold, generating a profit that is not major compared to the invested sum, but which still manages to overcome all costs and generate a return on investment. 

DCA or Rescuing Buys

The DCA process in the bitcoin domain and cryptocurrencies in general basically goes only one way. That means that investors accumulate during the bear market but do not do the same when the prices are rising. With that in mind, many trading professionals believe that the whole term is used in an incorrect way. 

Instead, when people in the cryptosphere say DCA, they basically mean recurring buys. However, the naming convention aside, the process is still widely used in its present form. Additionally, many traders tend to rediscover it during bearish periods and take it on as a safer and more stable strategy than regular day trading. 

Piece of Mind

Many professional traders underline that the key benefit of DCA comes from the mental stability and assuredness that it provides to its users. For example, a person who bought a bulk order of BTC tokens back in the moment when this asset was at 60,000 USD will need to wait a long time to see a new record come about. Even then, their profit will be as big as they are willing to wait on one hand, and on the other, as high as the price will get in that period.

On the contrary, a person who steadily invested in BTC through DCA over the past months, when the price was and still is around 20,000 USD can attain a much bigger return on investment using a lot fewer USD funds. At the same time, the person using DCA will not have to maniacally follow the crypto market and its movement. Instead of that, they can simply wait for the moment when BTC for example, hits 40,000 USD and cash out with a practically doubling of their investment. The same milestone will be hit in the crypto market a lot sooner than the all-time record of nearly 70,000 USD.

Portfolio Strategy

Underneath the DCA the question of the overall portfolio strategy remains as relevant in the crypto market as it was and still is in traditional trading. This includes the dilemma of how much any trader and investor wish to own a particular asset. Because of this, even DCA does not involve having an auto-pilot approach for all interested individuals and even organizations. 

Instead, DCA is a tool that can help a portfolio reach its targeted aims through the same mechanism. But, mechanisms themselves rarely produce ROI on their own. The same is the job of the traders and investors, working with their portfolios. Here, even the very popular DCA remains nothing more than a potential means to an end.

Source: Coindesk