What is DCA ?
DCA is a known strategy in investing, whether in crypto or not.
Literally, DCA stands for “Dollar Cost Averaging”.
Littéralement, DCA signifie “Dollar Cost Averaging” (Coût moyen du Dollar en français).
The purpose of this type of strategy is to eliminate the impact of volatility on the overall buy and this is suitable for long-term crypto investments.
This strategy eliminates a lot of the work of trying to predict market price movements to buy at the best prices.
The DCA by fixed sums is also known as the “constant dollar program”.
The DCA is a tool that an investor can use to build up savings capital over the long term. It is also a way for an investor to neutralize short-term volatility in the crypto market.
Do Bitcoin DCA
Take the case of Bitcoin.
Even if we can’t predict the future of Bitcoin, with its democratization and the fact that more and more countries/companies are integrating Bitcoin as a means of payment, it’s a safe bet that its price will only increase. In the coming years.
Only, at present, Bitcoin has a seesaw and remains volatile. Over a period of several months, it can vary from 10 to 20%. By buying Bitcoin regularly and on a regular basis, you build up a bitcoin capital whose overall value will increase over the years.
At that point, having bought it when it cost $20,000 won’t really make a difference.
An interesting long-term strategy for patient investors
It is a strategy that allows anyone to get started in investing because you can very well start on the basis of a few euros per week while staking your bitcoins to earn interest and reinvest it immediately.
This DCA strategy then turns out to be an excellent technique for growing capital over the years in a safe haven like Bitcoin, the price of which will most likely increase very sharply in the coming years.
The advantage of DCA in cryptos (not just in Bitcoin) is that the global crypto market is becoming more and more generalized and the uses are becoming more and more common.
The most interesting thing is that most cryptos today have staking or earning programs that allow you to generate daily interest. The interest rates are very interesting since some programs go up to 20% on stablecoins and therefore taking no risk (even if suddenly, the stablecoins are not likely to gain much value over time …)
In short, the DCA can be interesting for anyone who wants to start building up savings capital without taking too much risk.
How to invest with the DCA method in cryptos ?
It is very simple. All you have to do is choose a token (or several), an amount (the one you are going to put in each period), a recurrence and a deadline.
For example :
-> Token : You decide to bet on Bitcoin because you think it is a token that has long-term potential
-> Amount : You then calculate your budget based on your income and set an amount you can afford to block out of reach
When applying the DCA method in cryptos, the goal is really to invest your funds and never touch them. The goal is not to want to invest too much and go searching every month because you need cash.
Let’s say you decide to allocate $80 per month and you can afford it.
-> Recurrence : Here you define, depending on the amount you decided in the previous step, the regularity with which you will buy your token.
Our advice : We advise you to base yourself on a fairly short period. This allows you to avoid breaking your rules and actually doing it. Also, the smaller the sum, the less impact it will have on your day-to-day finances.
According to the previous step, you have decided to invest 80 euros per month, so you decide to split this investment into 4 x 20€ per week.
-> Time limit : Here you decide on a deadline. It’s optional but it’s always good to have objectives with a deadline, it allows you to detach yourself from the investment and take a step back until the deadline.
For example, you define a period of 2 years.
Put your DCA strategy in place
When you have defined these 3 points, it is time to take action.
You need to choose the platform on which you will buy your tokens. You have the choice between :
- A cryptocurrency exchange platform (exchange)
- A broker who makes cryptocurrency contracts (broker)
- Via a wallet that allows the purchase of cryptocurrencies.
Thus, every week, you go to the chosen channel and you buy 20€ of Bitcoin. Even if it is complicated in investment, it is essential when you do DCA to detach yourself from your investment.
You should avoid constantly watching prices and panic at the slightest downward movement. If you have decided to bet on the long term, wait and do not stress.
On which cryptos to do DCA ?
An essential step to apply the DCA method in cryptos is to choose the crypto on which to bet. It is very complicated because the DCA is a long-term strategy and we know the volatility of the crypto market.
The DCA being a slow and (very) long-term strategy, it is a question of thinking well and putting all the chances on your side so that the value of the token increases and gains in value over time.
Do not do DCA with these cryptos
The 2 types of cryptos that are not suitable for DCA are :
Stablecoins are tokens that are intended to be stable and backed by fiat currencies.
Doing DCA on a stablecoin is therefore useless, unless your goal is to partially detach yourself from the banking system without wanting to make a profit.
Stablecoins are not yet 100% trusted cryptos. We saw the case of the UST, which turned out to be more fragile than we thought.
“Shitcoin” is a term used to define cryptocurrencies that come out without a real project and that are only intended for speculation. They are adored by budding traders who see great potential for getting rich quickly.
However, it is obvious that you should never choose a token with a little confidence to do DCA (even if your neighbor tells you that he has a future).
Conversely, trust should be the main element of your thinking when choosing your crypto.
Cryptos to consider for DCA
The cryptos to be favored for doing DCA are those with the greatest possible confidence. Despite everything, the crypto market remains very young and very volatile, for all the cryptos that exist.
However, there are some tokens that are more likely to last because they have real utility.
To identify cryptos that have a future, you have to get information, study the project and the roadmap. You have to know the project behind a crypto and what it brings as an innovation to users.
Here is a list of cryptos that can be considered for DCA in 2022 :
This is not investment advice. This article is purely factual and neutral.
On which platforms to do DCA ?
There are several types of platforms through which you can perform your DCA strategy :
Exchanges (Exchanges platform)
Exchange platforms are sites where you have access to a range of cryptocurrencies that you can buy. The best known platforms are:
These platforms offer the advantage of being easily usable and of actually owning the tokens.
Brokers are brokers that allow users to place themselves in an asset, be it cryptos, physical assets or fiat currencies.
It is possible to make DCA by placing yourself on the rise of a cryptocurrency and keeping its order open for the period you have chosen.
The main crypto brokers are :
The advantage of brokers is that they are very intuitive and anyone can make their first purchases there in a few minutes, even with very basic knowledge.
Several types of wallets exist. Among them, browser wallets are digital wallets that link directly to your browser.
They are very easy to install and most of them offer a direct purchase of cryptocurrencies, either via an external platform or on the wallet directly.
Here are some wallets that allow the purchase of cryptos :
The advantage of wallets is that they are decentralized and your cryptos do not depend on a structure.