HomeCrypto blogWhat is Dollar Cost Average? | DCA Explained

# What is Dollar Cost Average? | DCA Explained

DCA stands for Dollar Cost Average. Regardless of price, dollar-cost averaging is the systematic practice of investing equal sums of money at regular intervals.

## Dollar Cost Average

So the dollar cost average basically says that you will commit a certain amount of funds whether that is weekly or daily or monthly or yearly and you’re going to decide which cryptos or fractions of crypto you are actually going to be buying. You would do this consistently over a period of time. So you don’t have to buy a full bitcoin to get involved with bitcoin you don’t have to buy a full Ethereum coin you don’t have to do that you can buy fractions of these coins so this is why we use the dollar cost average.

## Example

To give you a typical example I’m going to commit 500 dollars every single month for the next five years and then what I’m going to do is to say okay from that 500 dollars every month \$100 is going to go to bitcoin \$100 is going to go to Ethereum another \$100 is going to go to Ada another \$100 is going to go to lets Vechain and another \$100 is going to go to xrp. So what have I effectively done I’ve now invested 500. I’ve gone to crypto exchanges like Binance gone there put my 500 in and I am purchasing 100 dollar worth of each of these cryptos. If you’re looking at \$100 you might say well I’m gonna commit twenty dollars to each one of these cryptos whichever ones you feel comfortable with obviously you would have done your own research by now. So you know you have an idea of which cryptos you want to build.

Two things are going to happen number one over time you are going to be accumulating a number of these coins or you’re going to be building towards a full coin on many of these. Number two you are going to be benefiting from the value going up over time. So again if we use the example of bitcoin and Ethereum let’s say from about four years back if you had committed 500 per month over the last four years let’s say from 2017 when there was that massive high of bitcoin and the subsequent bear market that came after that. If you commit 500 and said look I’m only going to give buy 250 dollars worth of bitcoin per month 250 dollars worth of Ethereum and you did that every single month over the last four years, you would have made quite a bit of money why because you would be accumulating fractions of a coin every single month and eventually building towards maybe at this point having half a bitcoin, three-quarters of a bitcoin some of you might even have had a full bitcoin.

Know most important thing is timing, there are going to be times where the market you know the value of that particular coin is quite high other times it’s going to be quite low now when it’s low you want to take advantage of that, especially with your dollar cost average you don’t want to just say okay I’m going to commit it on on the 25th of a month or the 31st but at that time the price is very high you want to then wait for a little dip why so that 250 dollars or 100 dollars that you committing to buying bitcoin you are going to get more fractions for your money. Think about this if you bought 10 dollar worth of bitcoin in 2009 you would have over 10 bitcoins at this stage that should have meant I would have had over 5 million dollar worth of bitcoin.

This dollar cost strategy helps you to number one be able to invest by yourself in bitcoin and many different cryptocurrencies. It helps you to number two build a crypto portfolio and it helps you to also benefit from the market value of these coins going up over time.

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