DCA can act as a sort of safety net, instantly dropping your expenditure in the event that your timing isn’t ideal or the stock market suddenly plummets.
Investing in cryptocurrencies through dollar cost averaging removes the need to speculate on when is the right time to purchase by automatically increasing purchases when prices drop and reducing when they go up. A number of cryptocurrency exchanges provide the option of utilizing auto-buy, which allows you to spread out your investments into different cryptocurrencies over a period of time to gradually increase your digital asset portfolio.
What is a Recurring Buy on a Crypto Exchange?
A recurring purchase, sometimes called auto-buy, is simply a phrase used to describe the practice of investing the same amount of money at a regular interval. You can automate your Bitcoin buying by allocating money in your budget to purchase the cryptocurrency regularly, allowing your Bitcoin purchases to be made without your having to manually provide instructions.
It’s hard to correctly time the market when constructing a stake. Feelings also have an effect, particularly in the ever-changing crypto sphere, causing us to make decisions we might regret after. Regular purchases take out the need for you to get involved with direct trading. Rather than selecting something, you pick a resource, a sum you want to put in, and a frequency of investment. The exchange looks after the rest, procuring on a pre-established recurrent agenda that you have determined.
The outcome of purchasing cryptocurrency in regular intervals through a cryptocurrency exchange is that your typical acquisition cost will decrease when the market costs decrease, and the opposite when they increase. Making regular purchases of an asset to keep up with the market trend is something not many investors can do without sticking to the principle of dollar cost averaging.
DCA involves putting the same amount of money into an investment at regular intervals. For instance, you could put in ten dollars on a weekly basis or five hundred dollars on a monthly basis. This approach allows you to purchase a larger amount of the investment asset of your choice when prices go down and decreases the amount of purchasing when prices go up.
Benefits of DCA in Bitcoin
Investors have benefited from using the dollar-cost averaging approach when investing in cryptocurrencies like Bitcoin, and there are some major benefits that stand out.
Doesn’t Require Large Up-front Investments
Dollar-cost averaging gives you the ability to make many smaller investments at regular periods of time. DCA enables you to spread out your investment gradually instead of investing a large amount of money all at once.
This is perfect for those who feel uneasy about investing great amounts of money in Bitcoin or other digital currencies all at once. If you do not have a lot of funds to put into something right away, DCA allows you to purchase gradually and build up your possessions as you go.
Reduces the Risk of Purchasing Upward Spikes
By using dollar-cost averaging, you break up your original investment into smaller parts, meaning you don’t have to worry about putting all of your money into the market if there is a sudden surge in prices. Making periodic purchases spreads out the risk and guarantees safety from overly high prices.
While Bitcoin has been generally gaining in value, it is well-known for sudden and considerable increases and decreases in a short period of time, oftentimes only lasting days or weeks. Using the DCA method protects you from sudden rises and falls, allowing for the application of its average growth rate for your benefit.
Offers Opportunities to Buy Bitcoins at Low Prices
You can benefit during times of sudden Bitcoin value decreases. If you had only $52,000 to invest in Bitcoin, you could buy around three shares on January 1st, as each share would be worth $18,000. This single acquisition would not give you any chance to acquire at a possible lower cost down the line.
Creating a plan to buy Bitcoin using dollar-cost averaging provides the opportunity to purchase more of the cryptocurrency when prices sink. If a person had $52,000 at the beginning of the year, they could have created a plan to invest $1,000 every seven days if they chose to do so. In a single week, the cost could decrease all the way down to $5,000 a share, which would enable the individual to get 1/5th of a share with their $1,000.
Even though it might not appear to be a big deal, investing in the company over the course of the year by taking advantages of price declines would result in having more shares than just buying them all at once. A DCA works to prolong the return on investments and take advantage of dips in prices, so that one can acquire more shares gradually as opposed to all at once.
Provides Time to Understand the Market
If people invested in Bitcoin and kept it for more than three years, they have gained profitable returns on their original investments. When Bitcoin lost value early on, some investors were cautious of the danger and sold their assets shortly after buying them. Having strong emotions in reaction to market changes can make it difficult to gain knowledge from the markets.
It is essential to not regard Bitcoin and other digital currencies as a way to make a large amount of money quickly with high risk. Using dollar-cost averaging emphasizes a long-term commitment when it comes to investing by setting a timeline for doing so. With more time, you have the opportunity to look into and gain knowledge from the market.
Can Lower the Emotional Stress of Investing
It is not hard to disregard the emotional component of investing, however it is important to take your mental wellbeing into account. The ups and downs of the market can take a toll on your mental and emotional health. Bitcoin is more erratic than stocks which are generally steady.
By using the technique of dollar-cost averaging, one can distribute the danger associated with Bitcoin investments, thus avoiding the possibility of being in a situation of precipitous loss of one’s overall investment. It is less nerve-wracking when your financial security is not riding on the fluctuations in price.
Having an outlook that looks beyond the present can aid a lot of investors to stay focused on their ultimate target and avoid behaving in an emotionally-charged manner when temporary drops happen in the stock market.
How Does Dollar-Cost Averaging Work with Crypto?
The same concepts are applicable when utilizing dollar-cost averaging for cryptocurrency investments. Putting aside smaller amounts of money in cryptocurrency on a consistent basis gives you the opportunity to benefit from any dips in the digital money market without putting your full investment amount in danger.
DCA affords you a measure of flexibility in terms of security while at the same time permitting you to capitalize on increases in the market value of a particular asset. Nevertheless, you will invest in the market when prices are both high and low because you are buying the asset over a period of time.
We will illustrate an actual situation involving cryptocurrency. One possible way of restating this sentence could be: John intends to invest a total of $150,000 in Bitcoin over the course of a year. John can:
- Invest $2,884 every week for 52 weeks
- Invest $5,769 biweekly for 26 weeks
- Invest $12,500 every month for 12 months
- Invest $37,500 every quarter for a year
As demonstrated, the dollar-cost averaging approach to investing in cryptocurrencies is simple.
- Select a cryptocurrency in which you want to invest.
- Determine the total amount of money you want to invest.
- Set the length of your investment period and how often you wish to invest.
- No matter where the market stands, continue investing your money regularly.
- Wait for the period to end before considering whether or not to cash out.
With this gradual plan, DCA evens out your buys over a period of time, helping people save their investments from any considerable fluctuations in the digital currency market.
Your capacity to gain a return from one-time purchases hinges completely on the worth of your cryptocurrency when it is bought.
Is Dollar-Cost Averaging Safe?
It is important to thoroughly research and evaluate if dollar-cost averaging is the right method for your long-term Bitcoin investments.
Though investing in crypto through dollar-cost averaging is generally considered more secure than putting all your resources in at once, it is still important to exercise caution when utilizing this technique. You should be aware of the potential risks associated with this investment method.
Crypto assets may not always provide a lucrative outcome for your investment, even though they have maintained a gradual rise in worth. There are a lot of views on digital currency investing that are found on the internet, so it’s important for you to thoroughly investigate before making a decision.
If your research shows that cryptos are a viable investment option, then using the Dollar Cost Averaging technique may be a secure way to go about it.
Top Crypto Exchanges For Dollar Cost Averaging
Not all trading platforms offer the ability to purchase goods and services at regular intervals or automatically transfer funds. We chose three the most suitable options that make gradually increasing one’s position simpler with dollar cost averaging.
Uphold
Uphold has designed an interface that is straightforward and user-friendly, combined with a useful set of features like staking, crypto-to-crypto trading, and helping you to build your crypto portfolio. This exchange, established in 2015, currently has more than 200 monetary units and operates in almost as many nations.
Using Uphold for dollar cost averaging is one of the most straightforward methods in the cryptocurrency field. However, Uphold’s fees can add up, reducing overall gains. Think about utilizing an ACH bank transfer instead of a credit or debit card in order to cut down on expenses.
Uphold does not take a fee from customers for purchases that take place automatically on a regular basis, which the exchange refers to as “autopilot” transactions. Nonetheless, you will incur a fee differential, the magnitude of which depends on the type of digital currency that you are purchasing. You should anticipate spending around 1% of the trade for the spread, which is the distinction between the current cost and the amount you are purchasing for. This spread won’t be shown on the Uphold transaction review.
- User-friendly interface
- 196 cryptocurrencies available
- Daily, weekly, or monthly auto-buy
- 1% average spread
- Funding fees can be high
- Additional fees for non-recurring trades
Auto-Buy Fees on Uphold
It is cheaper to use your bank to transfer money into deposits than to shell out money with credit or debit cards, as the financing fees can reach 3.99%. No transaction fee is assessed by Uphold but instead, there is a spread fee which is determined by the type of cryptocurrency. The cost of the item you are buying is going to be slightly higher, around 1% more.
How to Set Up Auto-Buy on Uphold
Step 1: Open your accountVisit Uphold to start your account. In order to finish establishing the account, you must show verification of who you are.
Step 2: Add funding source
To get started with trading, click the three dots icon situated in the left menu, then click on ‘linked accounts’ to attach a funding source.
Step 3: Select your auto-buy
Decide on a financial source for your transaction, then pick out the amount of the transaction and the crypto you would like to procure. This display offers you the ability to pick how often the transaction should be repeated.
Verify the details of your recurring buy. When you click confirm, you’ll execute the first purchase.
eToro
eToro has two main features that enable users to gradually purchase cryptocurrency: setting up regular deposits and a selection of digital assets to choose from. A minimum deposit of $10 is necessary for acquiring a debit card for recurring deposits.
You must finish one section of the trading process by yourself; eToro will not purchase cryptocurrency for you automatically. You should go to eToro when you have received a notification about a repeated deposit that has worked out to acquire the cryptocurrency of your choice.
eToro distinguishes itself from other cryptocurrency exchanges by offering the option to buy stocks, exchange-traded funds, and the major cryptocurrencies all on one platform.
- Mix crypto with equities
- User-friendly interface
- Use social investing to follow the moves of successful traders
- Recurring deposits only (not buys)
- 1% spread fee
- Limited cryptocurrencies
Auto-Buy Fees on eToro
If you’re paying with your debit card, eToro is an excellent option as there are no service fees. There will be an extra charge of 1% for crypto transactions, which will be included in the total cost.
How to Set Up Auto-Buy on eToro
Step 1: Open your accountGo to eToro to create a profile and confirm your identity.
Step 2: Fund your account
Go to your account overview page and select the settings option, and afterwards select recurring deposits.
Add a funding source and select an amount.
Step 3: Choose your purchase
On eToro, you can establish regular deposits, however the platform requests for you to choose an investment whenever rather than auto-buying for you. When you get a notification that your recurring deposit went through, go to eToro or utilize the mobile application to complete your purchase.
Binance
Binance offers a great deal to people who desire to create an accumulation of assets, with reasonable handling expenses and access to more than one hundred thirty different kinds of cryptocurrencies. If you invest in Bitcoin, you won’t pay any trading fees – and the fees for other trades are cheaper than at other platforms. Using a debit card to cover the cost of a purchase will incur a fee of 3.75% of the price.
- 130+ crypto choices
- No trading fee for Bitcoin
- Easy interface
- High fees for credit card funding
- Fees not broken out in the purchase preview
Auto-Buy Fees on Binance
The commissions for Bitcoin dealings are the most economical of all reviewed, with 0% for transactions denominated in US Dollars. Many popular trading sets, such as ETH/USD, LINK/USD, and SOL/USD, can be subject to the lowest rate of Binance’s commission of 0.1500% (taker fee). Individuals who transact a large quantity of trades or those who pay transaction fees using BNB can get a price reduction. The commission for virtual currencies other than Bitcoin (Tier 0) and those for most prominent coins and tokens (Tier I) is 0.4500%.
How to Set Up Auto-Buy on Binance
Step 1: Open your Binance accountGo to Binance to open an account and finish confirming your identity.
Step 2: Set up your auto-buy
Click on “buy crypto” on the top menu. Pick the amount of money and the particular cryptocurrency that you want to purchase.
In the setup widget, press USD balance and select or include an option to transfer money, either through a bank or with a debit card.
Step 3: Confirm purchase details
Check your work and confirm the recurring purchase.
Taking the First Step To Invest in Crypto With DCA
Dollar-cost averaging can be mind-boggling. Don’t let the calculations and figures dissuade you from a potentially amazing investment venture. Not sure where to start? We are here to help.
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