Dollar Cost Averaging, Explained

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Investing in crypto can be tricky. The complexities of deciding what to invest in, when to double down, and when to hold cash are often amplified by crypto’s volatility.

To avoid banking on the “perfect” time to buy, beginners, seasoned investors, and even experts often use dollar cost averaging, a popular investment strategy.

In this article, we’ll explain:

  • What dollar cost averaging is
  • What the benefits and drawbacks are to this approach
  • Steps on how you can adopt a dollar cost averaging strategy today

What is dollar cost averaging?

Dollar cost averaging is an investment strategy in which an investor evenly splits their investment into periodic purchases regardless of the asset’s price.

Investing in smaller amounts over time means that you’ll buy both when the price is high and when the price is low.

In turn, this smooths out your average purchase price.

Dollar cost averaging is popular in crypto given how quickly prices go up and down in a short period of time due to volatility. The basic idea is that you spread your investment into equal amounts over regular intervals instead of trying to decide on the “perfect” time to buy.

How does dollar cost averaging work?

It’s important to start off by remembering that when investing in bitcoin, you don’t need to buy a “full” bitcoin, despite what many new investors often think. Instead, investors will often purchase a small amount or fraction of “one” bitcoin.

So, say you have $500 to invest in Bitcoin. Instead of buying $500 worth…

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