Dollar Cost Averaging (DCA) your way to wealth with bitcoin

According to Satoshi Nakamoto's whitepaper, Bitcoin is a decentralised electronic cash system. Not surprising that it has found numerous use cases by its adopters ranging from a sovereignty tool, a cross-border transactions solution, a commodity to trade, a driver of financial inclusion, a currency for online dealings, and an investment vehicle.

In this article, we will focus on bitcoin as an investment tool. Adopters have used this revolutionary technology and network to amass wealth through speculating, accepting Bitcoin payments, arbitraging margins, lending, 'HODLing,' and other investment strategies.

It is too expensive 

The cost of a single bitcoin may deter newbies; we've all been asked for a 'cheaper' alternative before, but you can always buy fractions with what you have using a DCA strategy until you reach your goals. There are only 21 million bitcoins, and you can buy as little as 0.00000001 bitcoins, also known as 1 Satoshi.

It is too unstable 

Price volatility is still a significant issue for this group of adopters; for instance, bitcoin price reached an all-time high of $69,045 on November 10, 2021, but has since fallen to lows of $17,588 in June 2022 before rallying to the current $23,928 level.

An investor who bought the top to sell at a higher price is currently incurring significant book losses. They say you're not losing money if you don't sell, but that doesn't take into account opportunity cost. You may need to sell to fund an emergency or other need, and we can all agree that the realized loss in the case of an emergency sale would be substantial.

Dollar cost averaging

Bear markets remind us that we must develop better strategies to survive the market, especially if we are buying to sell at a specific price or time, which is where Dollar Cost Averaging (DCA) comes in.

Benefits of using DCA

DCA is an investment strategy in which an investor divides their total capital and invests it across periodic purchases in an effort to cushion themselves from the impact of volatility. This proves an effective crypto trading strategy as purchases are executed at regular intervals regardless of the price which helps a trader avoid the temptation of timing the market.

“DCA all the way down, take profits all the way up,” Robert Njogu, Bitcoin Investor.

Suppose your strategy, for example, is to hold bitcoin for the next five years because your analysis indicates it may be at a certain price. In that case, you can begin making weekly or monthly purchases worth, say, $100 each until you deplete your assigned amount and reach your target. This allows you to catch different prices, control your emotions better because every dip is seen as an opportunity to get more, and avoid market mistiming when bulk buying.

“Time in the market >Timing the market” Rufas Kamau, Markets Analyst at EGM Securities.

Challenges presented by DCA 

A disadvantage of this would be fees paid to platforms or the network, as well as the fact that during bull markets when prices are trending upwards, you stand to get better returns if you bought everything lower as opposed to smaller amounts over time; however, you can't accurately predict where the market is going, so risk management is always essential.

“Most people lose money in the markets because they FOMO in at the top and panic sell at the bottom” Eric Jackson, CEO and Co-Founder of Hisa App.

The best time to start buying bitcoin and other assets is when the price is low, as it is right now; the fundamentals have not changed; ignore the noise and follow your conviction.

“Be greedy when others are fearful and fearful when others are greedy” Warren Buffet.

How to DCA 

Africans who use bitcoin as an investment vehicle can make regular purchases using applications such as the Yellow Card App. When investing with money you already have, deposit it on their app and make purchases at your convenience. You have the option to keep it in USDT to protect its value against a falling local currency. When making purchases with money from those intervals, depositing and buying at that point is equally effective, and you also get to enjoy the convenience of bank integration.

Bitcoin is a highly volatile asset and adopters must practice risk management. The contents of this blog do not constitute financial advice.

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