Why You Should Care About Dollar-Cost Averaging Your Crypto
Long-term investors tend to be more likely to prosper than those trying to buy low and sell high in the short or medium term, and dollar-cost averaging can help
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- A sharp downturn in markets need not be feared by the dollar-cost averaging investor
- Investors can combine dollar-cost averaging with regular deposits into an investment account or crypto exchange which allows investors to save and invest more reliably and efficiently
In the words of billionaire investor Charlie Munger: “The real money comes not in the buying or the selling, but in the waiting.”
A more common saying today might be that your “time in the market is more important than timing the market.” In other words, long-term investors tend to be more likely to prosper than those trying to buy low and sell high in the short or medium term.
What’s the best way to get into any market for the long term? Many might argue that dollar-cost averaging (DCA) is one of the most effective strategies for investors looking to smooth out the natural dips and rips that occur in markets. This holds even more true in markets notorious for volatility like crypto.
Benefits of dollar-cost averaging
There are both pros and cons to the DCA strategy. But the benefits tend to outweigh the drawbacks. Some of these benefits include things like:
Risk Reduction. A sharp downturn in markets need not be feared by the dollar-cost averaging investor. In fact, it might be welcomed, because buy orders during a correction will be more beneficial.
Emotional Detachment. It’s easy to get caught up in FUD during bear markets or FOMO during bull markets (especially with all the great crypto memes out there). But DCA is more of a “set it and forget it” type of process that filters out market noise. Marketing timing also becomes irrelevant.
Disciplined Saving. Investors can combine dollar-cost averaging with regular deposits into an investment account or crypto exchange. Doing so can allow investors to save and invest more reliably and efficiently.
There are other benefits as well, but these tend to stand out when it comes to crypto. Vauld users are able to tap into all of these benefits through the use of Vauld’s automated investment programs.
Vauld’s “buy the dip” feature
One way to dollar cost average into any asset is to set recurring buys at regular intervals for a set dollar amount. But what if there were an even more effective method?
One of the big benefits of averaging in is buying more when prices dip. Over time, any DCA strategy will naturally wind up buying some dips. But Vauld’s DCA equivalent feature is the Automatic Investment Plan (AIP), which can be customized in a way that can help investors maximize their potential returns.
“The DCA product has two parameters that you can play with. One, you can dollar cost average over time, or [two], the ‘buy-the-dip’ feature, which is when you dollar cost average relative to a drop in the market,” said Darshan Bathija, Co-Founder and CEO of Vauld.
This allows investors to schedule buys not only at regular intervals, but also in accordance with market corrections. Someone trying to build a position in bitcoin (BTC) could schedule a buy order that will execute whenever BTC dips 5%, for example. This can be a lot easier than trying to navigate the order books of most traditional exchanges.
Darshan Bathija added: “It removes the stress of trying to time the market. All you have to do is make sure you have [a] sufficient stablecoin [balance] on the platform, which is actually earning interest for you at the same time.”
Being able to automatically buy the dip helps to offset one of the main criticisms of the DCA strategy: reduced returns relative to timing a market bottom or regularly buying dips. Because bull markets tend to last longer than bear markets, investors who average in are likely to miss out on some gains.
“Volatility is a huge block for most people wanting to enter the crypto space,” said Darshan Bathija, CEO and Co-Founder of Vauld. “Dollar-cost averaging is the best way to start investing in crypto, and I think Vauld’s BTD feature actually benefits any person entering the crypto market.”
All in all, the ability to earn interest on assets while averaging in and buying the dip can help maximize returns without trying to time the market or being concerned with FUD or FOMO.