Bitcoin Dollar Cost Averaging (DCA): All You Need to Know

In 2009, an individual or group known by the pseudonym Satoshi Nakamoto introduced Bitcoin, a decentralized digital currency functioning on a peer-to-peer network. Using blockchain technology, a distributed ledger, ensuring transaction security and transparency.

Due to its decentralized nature and limited supply of 21 million coins, bitcoin is becoming increasingly appealing as a store of value and a hedge against traditional financial risks, especially in Africa.

What is Dollar Cost Averaging (DCA)?

Dollar Cost Averaging is an investment strategy where an investor systematically purchases a fixed amount of an asset, in this case, bitcoin, at regular intervals regardless of price. This approach aims to reduce the impact of market volatility on the overall investment and allows you, as an investor to accumulate your position over time.

Imagine an investor named Sarah who decides to allocate $100 per month to bitcoin over one year, between Jan 1, 2023, to January 2024.

 
Month 1:

• Sarah initiated her DCA strategy by purchasing $100 worth of bitcoin at the market price, of $16,619 per bitcoin in January 2023. With her fixed investment amount, she acquires approximately 0.0060 BTC ($100 / $16,619).

Month 2:

• The market price of Bitcoin has increased to $23,725.90. Undeterred by short-term fluctuations, Sarah invests another $100. This time, at the lower price point, she can acquire approximately 0.0042 BTC ($100 / $23,725.90)

Month 3:

• Bitcoin's price drops to $23,646.55. Sarah maintains her disciplined approach, investing another $100, which now secures her approximately 0.0042BTC ($100 / $23,646.55).

Months 4-12:

• Over the following months, Bitcoin's price fluctuates, but Sarah consistently invests $100 each month. During market downturns, her fixed investment amount buys more Bitcoin, and during upswings, she acquires less.

End of the Year:

After 12 months, Bitcoin’s market price has increased to $46,261.47, and Sarah has accumulated a total of approximately 0.00216 BTC through her DCA strategy.

The average cost per Bitcoin is calculated by dividing the total amount invested ($1,300) by the total Bitcoin acquired (0.00216 BTC), resulting in an average cost of $46,261.47 per Bitcoin.

Altogether, Sarah has profited a whopping 70.25% on her bitcoin investment of one year.

This example highlights the DCA strategy's ability to be resilient in the face of the volatile cryptocurrency market and how it can be used to gradually accumulate more bitcoin at advantageous prices, which will ultimately lead to a more favorable long-term investment outcome.

Advantages of Bitcoin DCA

Disciplined Approach

DCA encourages a disciplined investment approach, promoting a long-term perspective and minimizing the influence of short-term market noise.

Lowering the Average Cost

During periods of market downturns, DCA allows investors to acquire more Bitcoin for the same fixed investment, effectively lowering the average cost per unit over time.

Psychological Benefits

DCA eliminates the stress associated with attempting to time the market, as investors focus on the long-term potential of Bitcoin rather than short-term price movements.

Risk Mitigation

DCA spreads the investment over time, reducing the impact of market volatility. This minimizes the risk of making significant investments at unfavorable price points.

Bitnob: The Best App for Bitcoin Dollar Cost Averaging

Drawing from the Sarah example above, Sarah can do things differently with Bitnob. 

With Bitnob's automated savings plans, Sarah can set up recurring bitcoin purchases at regular intervals, promoting a disciplined and systematic approach to long-term savings. This means her bitcoin purchases can run in automation.

Also, Bitnob offers an intuitive and user-friendly interface, making it easy for both beginners and experienced investors to navigate the platform. You can easily create an account, deposit funds, and initiate bitcoin savings plans with just a few clicks.

Additionally, Bitnob keeps its fee structure transparent, mirroring the openness of bitcoin, so users are informed of the expenses related to their savings plans. Click here to view our fees.

How to DCA Bitcoin on Bitnob

Bitcoin DCA on Bitnob starts with downloading the Bitnob app and funding your USD account,  as the funds in your  USD account will be used to purchase bitcoin through the Bitnob app at regular intervals.

Once your Bitnob account has been successfully created and funded, you can begin Bitcoin DCA journey by following the easy steps listed below;

Step 1: Tap on “more” in the quick links section and then tap on “Savings”

Step 2: Tap on “Create Savings Plan” and Select “Bitcoin Savings”. Then, give your plan a name.

Step 3: Select an amount that you’ll be saving. You can start with as little as $1.

Step 4: Set your savings frequency. You can choose to save every day, once a week, or once a month.

Step 5: Set a lock period for your savings. It could be 3 months, 6 months, or a year. 

Step 6: Pick a start date for your savings. Then select a funding source, which is your USD wallet. Then, select Start Plan, and you're all set!

Bitcoin DCA for the Long Term

Compared to short-term investing or timing the market, dollar cost averaging bitcoin over the long run has several advantages. In contrast with normal investments, the value of bitcoin typically appreciates over time. If you hold onto bitcoin for a long time, you could ultimately up make a significant amount of money due to its value and rarity. 

Dollar Cost Averaging is still the best way to invest in bitcoin, even though fear of market volatility may start to creep in. Your daily $1 will go a long way. This can be demonstrated clearly by utilizing the Bitcoin DCA calculator.

Found this helpful, download the Bitnob app to get started.