Dollar-cost averaging: An easy strategy to stack more sats

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Accumulating BTC

Photo by Volodymyr Hryshchenko on Unsplash

21 million bitcoin. That’s all there will ever be. Scarcity is one of bitcoin’s most fundamental aspects as hard money, and a major influencing factor in its price.

The Bitcoin community knows this. As a consequence, many bitcoiners have made it their goal to stack as many sats as possible. Dollar-cost averaging is one method to pursue that goal.

Here’s how it works.

Dollar-cost averaging: What is it?

Dollar-cost averaging — also known for its acronym, DCA — is an investment strategy consisting of dividing the total capital to be invested across regular interval purchases. Instead of spending it in a single operation, investors perform several periodic purchases to reduce the overall impact of volatility on the investment.

Although this strategy isn’t exclusive to the crypto market, many crypto investors have adopted it due to its effectiveness and convenience, especially in the long term.

This is a chart for a DCA on Bitcoin for the last 2 years. In green, the total invested. In yellow, the total value of the investment (dcaBTC).

Understanding dollar-cost averaging

In volatile markets such as crypto, volatility poses a high risk to traders. It’s very common to see large price swings both upward and downward.

Market timing is a common mistake traders make and one of the main causes behind trading losses.

Systematically investing equal amounts of capital in regular intervals — it can be weekly, monthly, quarterly, etc — regardless of the price at the moment of the purchase reduces the relevance of the market entry in the return of investment.

DCA vs. lump sum investment (Wealth Academy).

As a result, dollar-cost averaging flattens the investment curve, bringing it near to the average value of the asset. This strategy’s underlying theory is to take advantage of downward price swings, acquiring more coins for the same amount of capital investment and reducing the average entry price.

Is dollar-cost averaging a suitable strategy for you?

Dollar-cost averaging is suitable for lower risk-tolerance investors, as it mitigates two of the most significant risks of crypto trading: volatility and market timing mistakes — bad entries. It also reduces the impact of human psychology — namely fear, uncertainty, greed — on trading performance, as it relies on automated purchases on regular intervals.

That said, it’s fundamental to keep in mind that this strategy cannot protect investors against declining market prices. On the contrary, dollar-cost averaging only works out favorably provided the asset’s price increases in the long term.

This is why DCA has been such an effective strategy for bitcoin until now. Despite short term volatility, bitcoin’s price has consistently increased over the years.

Bitcoin all-time price action (Coin Metrics).

Additionally, experience isn’t the only point in favor of dollar-cost averaging. Bitcoin’s fundamentals are also compatible with this strategy. The gradual decrease in emissions (halvings), the maximum supply of 21 million coins, and the holding mentality of the Bitcoin community are all strong reasons to stack sats with a DCA approach.

On the other hand, DCA may not be for you if you’re looking for short-term profits and high-risk, high-return investments.

Pros and cons of dollar cost averaging

Among the many advantages of this approach, the most notable are:

  • Mitigating the risk of volatility and taking advantage of downward price swings.
  • Reducing the psychological implications of the investor, as it’s an automated process.
  • Incentivizing bitcoin cold-storage and long-term holding.
  • It’s simple, straightforward, and requires little technical or trading knowledge.

On the other hand, dollar-cost averaging can have some setbacks, including:

  • In a full-on bull market, DCA wouldn’t be as fruitful as performing a one-time investment, as investors may end up with some high entries.
  • Similarly, the system doesn’t work on low volatility markets.
  • Dollar-cost averaging requires tremendous amounts of patience, consistency, discipline, and peace of mind.

Closing thoughts

If stacking sats no matter what is your goal, dollar-cost averaging is the strategy for you. The DCA approach has proven to be very effective to accumulate bitcoin for long term holding at reduced costs.

Many important personalities from the Bitcoin community rely on this strategy to increase their bitcoin holdings. The most recognized, perhaps, is MicroStrategy’s Michael Saylor and his publicly announced purchases.

Additionally, it’s a good starting point for beginners to get used to market volatility while acquiring some bitcoin in the process.

In any case, it’s important to learn about the different strategies and approaches to accumulate more coins. After all, there will only ever be 21 million.

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