DCA is Dollar Cost Averaging. In simple terms, let’s say the price of a coin is 100 USD and you bought one unit. If the price drops to 50 USD, and you buy another unit, then you now have 2 unites for 150 USD. Cost of one unit is 75 USD now. This is nothing, but dollar cost averaging.
Is DCA a good way to invest in crypto?
Crypto is very volatile in nature. You can make a lot of money in very short amount of time. On the other hand, the value may drop rapidly. So if you want to invest in crypto, be in it for a long time, DCA is a good way of investing. It reduces the risk of investment going RED caused by short-term market volatility.
How does it work?
Instead of putting lumpsum in crypto at once, you put money in small fragments. Even if the price goes down, your average buy price goes down. In a bull market, this could also reduce your potential profit as you remain less exposed to the market. DCA strategy is mainly for the ones who wants to make profit over a long period of time.
Can we DCA in all crypto coins?
I would suggest to DCA only a handful of coins. We have seen more than 95 percent of the alts drop in value by more than 90 percent. Most of them never recovered. Even with DCA, you would still be in loss or marginal profit. Here let us mention the cryptocurrencies where you can DCA and chill. Dollar cost averaging is mainly for the investors who can’t give much time trading, but wants to invest for a long period of time.
- Bitcoin: Everyone needs to buy Bitcoin. Though the price of one BTC is almost 58k at the time of writing, it is still one of the best performers from the last bull run. Majority of your portfolio should be in Bitcoin. I am more comfortable keeping 50 percent of my portfolio in Bitcoin.
- Ethereum: Ethereum should be your second pick. It is second best cryptocurrencies by market cap. There are thousands of dencetralised apps running on Ethereum network. 25 percent of your portfolio must be Ethereum.
- LINK: Link has been the best performer since last the bull run. Link is the only top cap coin that went up, even in the bear market. Another 10 percent of your portfolio could be LINK.
- BNB: BNB is Binance token. Out of all the centralised exchanges, Binance is one of the most popular CEX. Binance provides a lot of features to the traders and holder. It is also going to launch NFT marketplace soon. You can also Dollar Cost Average BNB. 7 Percent in BNB
- FTX: FTX is the closest competitor to BNB and I am expecting it to flip Binance by 2022. FTX is a better product, has more stability. It should only be a matter of time FTX takes over BNB in marketcap. 8 percent in FTX
Why should you not DCA more than 4 projects?
If you invest in a large number of coins, the DCA becomes a messy affair.
a. Tracking the portfolio becomes a hefty task.
b. You need a lot fo funds. If you are distributing a small fund among huge number of coins, then you may not be able to make the best use of the market corrections.
I would prefer to DCA in a bear market into the coins mentioned above and wait for next bull market to take profit.
For anyone who wants to quickly trade and make profits, DCA is not meant for them.