Complete Dollar Cost Averaging (DCA) Crypto Guide

Dollar cost averaging in crypto, DCA, or recurring crypto purchases is the practice of using an automated investment setup that buys cryptocurrencies at a pre-set amount and interval. For example, you can choose to use a DCA or recurring crypto purchase system to buy $100 worth of Bitcoin once per week or once per month. This is done automatically by using a platform that offers recurring crypto purchases. If you don’t know which digital asset you pick I highly recommend that read our article on how to analyze cryptocurrencies before investing to find the right coin.

Today I will discuss the pros and cons of using this method of investment and I will also show you some recommended and safe crypto exchanges that offer dollar cost averaging for bitcoin and other cryptocurrencies. It is possible to profit from a DCA system by continuously purchasing digital assets over time and letting your portfolio grow. In this guide, I will go through some very important aspects for anyone trying this approach.

Content table

Most investors underestimate the benefits of using this approach when it comes to longer-term investing in digital assets. To show you how powerful the DCA method can be for crypto investors I’m going to break it down to you in a simple pros and cons table. Take a look below to see the benefits and the risks of using a recurring crypto purchase system.

What is dollar cost average (DCA) in crypto?

dollar cost averaging crypto

The DCA system in cryptocurrency trading is a way of automating your investment strategy through a platform or exchange. The strategy builds on a recurring purchase system that automatically buys a certain amount of a coin at a pre-set interval. With dollar-cost averaging, you can choose to buy $50 per week or $100 per day and the program will keep buying your chosen coin over time.

All the cryptocurrencies that you buy will be stored in the crypto wallet of the platform or exchange that you will use as your investment account. Depending on what site you are using there are different ways to monitor your account, profit, and losses but generally, you will be able to track all the gains you make in your cryptocurrency wallet.

When you invest with a recurring crypto purchase program you don’t have to manually purchase the coins yourself as the platform will handle all the transactions for you and this is probably the reason why this investment approach has become so popular. The number of coins available for investment will differ from exchange to exchange and it might take some research to find your favorite altcoins.

Is DCA effective and worth it?

The DCA strategy can generate very good returns if used properly over a longer period where you let the time work in your favor. To make the most out of the strategy you need to adopt a longer-term mindset where you let the market truly play out and the longer-term trends take control.

If you compare the standard buy and hold investment approach compared to the DCA strategy you will make bigger returns using the recurring crypto purchase system since you increase your position over time. This combined with buying when prices fall gives you a bigger better price and a growing portfolio. Take look at the example below to see how a $2400 investment will work overtime. This is based on a static investment of $1200 and a DCA system that invests $100 per month over two years from 2018 – 2020. For simplicity reasons we will assume that we buy on the 1st of every month.

Dollar cost average investing vs buy and hold

Here we have an example of two investors that will both invest $2400 in Bitcoin over two years where the first investor buys Bitcoin with the full amount on the first day and holds it for the whole duration of the investment. Investor number two uses the DCA method and invests $100 at the beginning of every month. Check the table below to see the result of both investment approaches.

Date Standard InvestmentDCA Investment
2018-01-01$2400 = 0.178526 BTC$100 = 0.007438 BTC
2018-02-010 = 0.178526 BTC$100 = 0.011124 BTC
2018-03-010 = 0.178526 BTC$100 = 0.009171 BTC
2018-04-010 = 0.178526 BTC$100 = 0.014676 BTC
2018-05-010 = 0.178526 BTC$100 = 0.011029 BTC
2018-06-010 = 0.178526 BTC$100 = 0.013331 BTC
2018-07-010 = 0.178526 BTC$100 = 0.015748 BTC
2018-08-010 = 0.178526 BTC$100 = 0.013154 BTC
2018-09-010 = 0.178526 BTC$100 = 0.013917 BTC
2018-10-010 = 0.178526 BTC$100 = 0.015217 BTC
2018-11-010 = 0.178526 BTC$100 = 0.015770 BTC
2018-12-010 = 0.178526 BTC$100 = 0.024152 BTC
2019-01-010 = 0.178526 BTC$100 = 0.026154 BTC
2019-02-010 = 0.178526 BTC$100 = 0.029113 BTC
2019-03-010 = 0.178526 BTC$100 = 0.026267 BTC
2019-04-010 = 0.178526 BTC$100 = 0.024176 BTC
2019-05-010 = 0.178526 BTC$100 = 0.018802 BTC
2019-06-010 = 0.178526 BTC$100 = 0.011687 BTC
2019-07-010 = 0.178526 BTC$100 = 0.009454 BTC
2919-08-010 = 0.178526 BTC$100 = 0.009608 BTC
2019-09-010 = 0.178526 BTC$100 = 0.010238 BTC
2019-10-010 = 0.178526 BTC$100 = 0.012020 BTC
2019-11-010 = 0.178526 BTC$100 = 0.010810 BTC
2019-12-010 = 0.178526 BTC$100 = 0.013490 BTC
Total Amount of BTC = 0.178526 BTCTotal Amount of BTC = 0.366582 BTC
Total dollar value 2020-01-01 = $1281Total dollar value 2020-01-01 = $2631
Total dollar value 2021-10-10 = $10,265Total dollar value 2021-10-10 = $21,078

In this example, where our investors started buying when prices were very high, the DCA system beat the standard buy and hold system. This experiment is based on the traditional way of amateur investing where most investors buy at higher prices due to a lot of advertising in the media and news outlets. This is logical because most investors will sometimes experience drawdowns in their investments.

The reason why the DCA system is so much more effective is the fact that it is accumulating bitcoin every month, no matter what the price is. It is also more effective because it will buy even though the price fall, which is something that you simply can’t avoid as an investor. If you keep investing in this over time you will grow your portfolio of bitcoin as well as the total dollar value.

Even if you would invest at low prices the DCA will still outperform the standard buy and hold unless you pick the absolute bottom and the prices keep going up all the time, forever, which is not the case in cryptocurrency investing.

Pros and cons of dollar cost averaging in crypto

ProsCons
Profit from lowering your average price when prices fall Might seem boring due to full automation
Reduces the emotional impact of investing significantly Takes a long time to see profits
Gives you full control over how much you invest Can be difficult to select which cryptocurrency to invest in
Creates a clear investment structure for the future Can give a sense of doubt when prices enter a bear market
Adds a sense of planning to improve your investment approach
Profit from longer-term holding
Minimizes trading fees due to controlled buying

Of course, there are not only sunshine and rainbows when it comes to the DCA approach but I will try to guide you to make the best choices if you choose to go with this strategy. Later on, in this article, you will find the best strategies for dollar cost averaging with cryptocurrencies so keep reading if you have decided to go through and use this approach. I will also recommend some of the most trusted exchanges and platforms that offer this service.

How to actually profit from DCA in crypto

To be honest, there is no real best practice on how to set up the recurring crypto purchase system so that you benefit from the actual buying mechanism. However, there are some things you can think about before you start investing in a DCA crypto program:

  • How much money can you afford to invest each week or month
  • How often do you want to purchase your chosen cryptocurrency
  • How many cryptocurrency should you invest in with a DCA system

These are important questions to ask yourself before you start because you don’t want to get stuck with a system that eats up your buffer too fast and you don’t want to set up the automation to buy very small amounts that don’t give you a stable ROI (return on investment). It’s all about finding the sweet spot. For example, take a look at your account size and your monthly salary and set up the system to fit your profile. Below is an example of how to best use the DCA crypto algorithm with different account sizes and monthly salaries.

Best ways to use a cryptocurrency DCA system

I will use three real-world examples for different account sizes and show you how you can optimize your recurring crypto purchases. In this example, we will put 2% of your account size and 10% of your monthly income.

Account size: $5000
Monthly salary: $1500

If your account size is about $5000 and your monthly income is roughly $1500 this would result in a $250 investment each month that you can keep rolling with a longer-term horizon, but at least over 2 years.

Account size: $20,000
Monthly salary: $3000

With an account size of $20,000 and a monthly income of $3000 you will invest $700 each month with the same time frame of at least 2 years. The longer your horizon is the more benefits you will get from the system.

Account size: $150,000
Monthly salary: $7000

Investors with an account size of $150,000 and a monthly income of around $7000 can afford to invest $3700 on a monthly basis with an investment horizon of at least 2 years.

This method of using 2% of your current account and 10% of your monthly income is a rather standard investment approach and some investors might think it’s a little bit too risk-averse. If you feel that you can handle a bigger investment it’s up to you to make the call to increase the amount.

What makes you profit from dollar cost averaging in crypto

The reason why DCA investing is so profitable for cryptocurrency investors boil down to a few things and it doesn’t have to do with how much you invest every month, how frequently you buy your coins, or what cryptocurrency you choose as an investment. The truth is that when you use a dollar-cost averaging program you benefit from many things that traditional funds have been doing for many years.

  • Long term investing beats many short term trading strategies
  • You profit from the over all trends in the cryptocurrency sector by holding on and re-investing in your coins over time
  • When prices fall you lower your average price and can buy more coins for the same amount
  • The fact that you are not in charge of actively buying gives you an edge by removing your emotions in difficult times

So, to sum things up, it is not a special way of using a recurring cryptocurrency purchase system, it is more about using it according to your account size and stick to the program over the long run. The longer you can stay with it, the more you will benefit from the bigger trends of the cryptocurrency market.

Why use a DCA system instead of the buy and hold approach

The obvious reason is of course to make money, but why is this approach better than the traditional buy and hold investment strategy that has been used for several decades? There are some good reasons to use the recurring purchase method instead of the old-school passive investing.

  • Less emotional stress – When you invest in increments you don’t feel as stressed as you normally would if you invested a lump sum directly.
  • Benefit from declining prices – When prices decline you will actually benefit from it since you will keep lowering your price.
  • Automation stop you from making stupid errors – This is a big one. When you use an automated investment setup that is planned out before hand, you simply don’t make the same amount of human errors that you normally would when you scout for new opportunities and your emotions kick in.
  • Planning makes perfect – When you plan out your investment through a DCA program you are creating an investment plan for the next 2, 5, or perhaps 10 years ahead. This helps you focus on the longer term trends and will pay out largely if you can stick to it.
  • Risk reduction – You actually reduce your overall risk when you divide your investments in smaller pieces. This is due to the fact that 99% of the population are not capable of timing their investments perfectly.
  • Helps with poor timing – There is really no way to have bad timing when you are using a crypto recurring purchase system since you will be investing every month or every week for a long period of time. Instead, focus on picking the right coin and the profits will come.

When is the best time to use a recurring crypto purchase system

If you are thinking about adopting this style of investment as a part of your portfolio you should know about the best time to use a dollar cost averaging system for cryptocurrencies. It is not going to make it or break it depending on when you start but there are some things to think about before choosing your entry.

  1. Start investing when prices are stable – It is better to invest when the market is more calm and not on a crazy bull run since you will have more time to accumulate your digital assets before prices take off.
  2. Make sure you can afford it – This has to do with your personal financal situation. You don’t want to get stuck in a longer term investment if you know you have larger up and coming bills to be paid in the near future.
  3. Your digital asset needs some adoption – Investing in a completely unknown, cheap, and new coin is very risky because you might be spending money on a lost cause. When you invest, make sure that your coins has gotten some interest from the general public and is not stuck on the 10th page of Coinmarketcap.
  4. Try to catch low prices – This goes without saying that buying lower prices is good, but in this case it’s actually extremely beneficial to keep buying when prices are low because you will be able to accumulate more coins over the long run.

As you can see, in terms of timing your investment it’s pretty straightforward. There are some things to be mindful of and some best practices for timing your investments based on the market and your financial situation.

Best ways and strategies to use dollar cost averaging in crypto

To set you off on the best foot I will give you a couple of handy tips before starting. None of these tips are going to be game-changing but if you do use them it might give you a better start and better result overall.

  1. Invest in several digital assets – You never now which coin will start moving in a positive trends and you defenitely don’t know when. Therefore, it’s a common investment practice to choose a basket for several coins to stand a better chance of picking a good one.
  2. Pick coins from the top 100 – By chosing coins from the top 100 by market cap gives you a clear edge due to the fact that they have already had time to grow a little and the cryptocurrency have had time to be seen by more people. This means that when the overall trend of the crypto market turns positive, your coins will most likely follow suit.
  3. Choose a platform with low fees – Since you are going to make several purchases over a period of several years it goes without saying that a good strategy is to pick a platform with the lowest fees possible. Check the table below to find one that suits you.
  4. Choose different investment frequencies – It is very effective to choose different frequencies on your investments if you decide to buy several different digital assets. This will act as a risk mitigator and give an advantage when prices are staying low for a longer period of time.

All risks involved with crypto dollar cost averaging systems

There are very few risks involved with the DCA system, however, as with any investment, there will be risks associated in this section I will outline the biggest risk factors with recurring digital asset purchasing.

  1. Picking the wrong digital asset – This is a given risk considering no investment is safe.
  2. Chosing the wrong platform – Many cryptocurrency platforms that offer dollar cost averaging are not safe and can be voulnerable to threats. Make sure to pick a trusted and regulated exchange in our table below.
  3. Investing too much – Something that is common when chosing the DCA method is thinking that a small investment is boring and instead chosing a bigger investment that eats savings and the monthly salary.
  4. Picking a digital assets that goes to the moon straight off – When picking a coin that takes off on a big increase straightaway and keeps going up for a longer period of time you will miss out on a lot of gains because you are buying in small portions.

Other than these minor risk factors there are not many more things to think about when considering this method. Keep in mind that you can always spread out your risk by picking several different coins to invest in. This will mitigate the risk of almost all these factors mentioned.

Trusted and regulated dollar cost averaging crypto platforms

As a digital asset investor, your main goal should be to find a trusted and regulated platform that offers a DCA system for crypto. It is of most importance to keep your funds safe while staying invested in the market and the best way to be sure of this is to use a reputable platform with government regulation. After reviewing plenty of crypto exchanges we have gained insights into which are the best ones that offer a recurring crypto purchase system.

The fees also play an important role in the equation and since you will be buying frequently you should opt to find an exchange that has the lowest fees possible. In the table below you will be able to find a local crypto exchange with low fees and low entry levels.

ExchangeLocationRegulationMinimum Account Fee
BlockFiUnited StatesNYSDFS$100%
CoinSpotAustraliaAUSTRAC$10.10%
CoinbaseUnited StatesFinCEN$20.50%
SwyftxAustraliaAUSTRAC$300.60%
NDAX.IOCanadaFINTRAC, AMF$00.20%
CointreeAustraliaAUSTRAC$200.25%
BitpandaAustriaFMA$250.15%
Digital SurgeAustraliaASIC, AUSTRAC$100.50%
EasyCryptoAustraliaAUSTRAC$1001%
CoinberryCanadaFINTRAC$500.30%
BinanceMalta$150.10%
CryptohopperNetherlands$190%
TradeSantaUnited States$00%
Gate.ioCayman Islands$00.20%
KuCoinSeychelles$300.10%
QuadencyUnited States$00%

Conclusion – Should you use DCA in crypto?

It is worth considering as an alternative investment approach combined with your current long-term portfolio. Investing is all about mitigating risk factors and the DCA method takes care of them quite nicely. It is also a very easy strategy to employ as it doesn’t take much effort from the investor.

After reading this guide you should have a better understanding of how to use the dollar cost averaging system for cryptocurrencies and you should also know if it is a good fit for you as an investor. I’ve given some of my best advice and tips that you can easily use yourself when starting.

In this guide, you will also find some of the most reputable and most trusted platforms that offer DCA strategies for crypto. Make sure to read the full review to see whether the exchange suits you or not. It should offer your local fiat currency, payment method, and regulation.

FAQ

It will never make you rich but it can work as a good addition to your current strategy by spreading out the risk.

I would not consider it to be the best approach but combined with other methods it will benefit your portfolio in the long run if you can pick good digital assets.

Yes, it does. If you choose a non-aggressive approach it will act as another leg to stand on for your overall portfolio and it will add your long-term goals.