What is Dollar-Cost-Averaging (DCA)?
Do you believe in the long-term potential of crypto? We do. Dollar cost averaging (DCA) is the best way for long term crypto investors to invest.
A DCA is a great technique to decrease volatility and invest for the long term. In this article I will show you how to setup an automated DCA in Coinbase, Binance, Kucoin, FTX, or Kraken. But first, what is Dollar-Cost Averaging (DCA)?
Dollar-cost averaging is an investment strategy where you will divide the total amount you wish to invest into periodic purchases. This results in reduced impact of volatility of a particular asset on your overall investment. Dollar-cost averaging removes the high risk of attempting to predict the purchase and sale of selected assets at their best prices.
Eg. I want to automatically invest 100$ into Bitcoin (BTC) every month in my crypto exchange.
You may have seen a DCA used within retirement savings accounts such as 401(k) plans. This is a great example of DCA in which periodic purchases are made despite the price of the asset and is a worthy technique as it aims to mitigate the mistake of making a poorly timed one-time purchase investment.
With Aikido’s Automated Crypto DCA you will buy some of the dips and some of the highs and on average with a long-term outlook you will be far better off than the risk of a lump sum purchase which gives you (the investor) more control.
The Dangers of Emotional Investing
Inexperienced investors have the tendency to make investments at the market top and retracting their investment at the market bottom due to media hype/fear or even an Elon Musk tweet. Panic selling is a real issue (especially due to the volatility of crypto markets) and dollar-cost averaging is a solution to this emotional investing issue. One thing we pride ourselves on here at Aikido is stress free investing; dollar-cost averaging takes away the stress of volatility. The more you look, the worse your investment returns. Not looking also helps you sleep at night. You can find more on mindful investing here.
Indeed, I am a big proponent of set-it-and-forget-it; the first year I turned quant, I didn’t look at my stock portfolio for 12 months as I knew that my emotions were the weak link. I came back 12 months later and lo and behold, I was up 44%. No intra-day trading, just a solid, long-term strategy.
Sarah’s monthly income is $3000 per month and she wishes to invest 10% of what she makes per week into cryptocurrencies. Every week she will take $75 and continuously buy cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH). Sarah may split the purchases 60/40 e.g. $45 of BTC and $30 of ETH. Shes set up this DCA in Aikido so that it is all automated and she can forget about it.
Crypto is a prime example of how effective this strategy is due to its market volatility.
How to Setup an Automated DCA with Aikido
Aikido offers a simple dollar-cost averaging (DCA) feature on your favorite exchanges such as Binance, Coinbase, and Kraken. It is a simple process, you will have your first DCA setup in less than a minute!
Step 1: ‘Create DCA’ from the Strategy page
From the Crypto Strategies page in Aikido, you will see a large Cryptocurrency DCA button – click it! You will be brought into the Crypto DCA creation flow.
Step 2: Connect your Crypto Exchange
Select your cryptocurrency exchange. Currently, you can choose from Coinbase, Binance, Kraken, FTX, and Kucoin. Don’t see your exchange and want to get started? Let us know and we’ll do the integration!
After you have selected your exchange, you will need to enter your exchange credentials (API Key and Secret Key) to set up the integration. Details on how to find this information are shown for each broker.
Click ‘Integrate’ and you will be set up straight away!
Step 3: Create the DCA
This is the fun step! There are four inputs:
- Choose your coin (eg. Bitcoin)
- Choose your base currency (eg. USD)
- Choose the investment amount (eg. $10)
- Choose the frequency (eg. Weekly)
Please ensure you have funded your account with the fiat or stable coin you wish to create the DCA with. Your DCA will fail until you have enough funds to cover the cost of your transaction. You can create DCAs with any fiat or stable coin the exchange supports, these include USD, EUR, GBP, USDC, USDT, UST etc.
Click ‘Continue’ and away you go! Your DCA is all set up. How awesome is that?
From the confirmation screen, you can set up another DCA or click ‘Finish’ which will take you to your new crypto DCA portfolio.
Note: Aikido denominates your portfolio analytics in USD, even if you created the portfolio based on EUR initially.
If you see cryptocurrencies as a long-term investment when you enter and exit the market should not be as stressful to you as the experience of day traders. You won’t need to be watching the charts day in day out and be attempting to catch the market. Aikido Crypto DCA delivers the best accumulation gains during a bear market and for the majority of crypto enthusiasts, DCA will most likely be the better choice over a lump sum investment.