What is the best time to buy Bitcoin? This is the question that many investors ask themselves. Its high volatility can make it difficult to choose a specific time to buy it. Moreover, one-time trading and investing involve impulsive decisions, guided by behavioral biases, which generally lead newbies to poor investment choices.
Instead of trying to time the market, many investors take a wiser approach to recurring buying, also known as a “DCA.”
In this article, we explain what DCA is, a savings strategy suitable for beginners as well as for the more experienced, which aims to mitigate certain risks associated with the volatility of Bitcoin. You will discover how DCA helps to avoid the human biases inherent in investing and trading. Also, we will see why this strategy is particularly consistent when it comes to buying bitcoin.
What is Dollar Cost Averaging?
The DCA, for Dollar Cost Averaging, is an investment strategy that consists of making periodic and fixed purchases of an asset, such as bitcoin. Unlike trading approaches or one-time investments (so-called “lump sum”), DCA involves the division of the investment into several small purchases at regular intervals.
For example, let's say you decide to invest €1,200 in bitcoin during the year 2024. A DCA strategy for this investment could be to buy €100 worth of bitcoin on the same day, every month. This purchase should be made consistently, regardless of the Bitcoin price.
This investment strategy is particularly consistent in volatile markets, where prices can fluctuate violently in a short period of time. In fact, Dollar Cost Averaging spreads the purchase over a longer period of time, which has the effect of smoothing out the average cost of buying the asset. In this way, you can mitigate the impact of price volatility on your portfolio and gain exposure to the long-term performance of the asset.
This makes it possible to spread the risk associated with price changes over several points of purchase, rather than concentrating it at a single point in time. In terms of investment, the DCA thus aims to avoid investing all its money on a bull peak, while taking advantage of price declines.
The DCA is therefore part of a long-term investment strategy. You have to establish a plan, respect your recurring purchases, and be able to keep the assets for a sufficient period of time, regardless of short-term changes in the market.
What are the advantages of a recurring scheduled investment?
In the case of a volatile asset like bitcoin, a DCA strategy has many advantages over trading or direct investment strategies. These benefits are often linked to the ability of this strategy to mitigate certain human behavioral biases, which can lead to large capital losses.
As seen above, the DCA makes it possible to reduce the impact of volatility on investment. By buying bitcoins at regular intervals, regardless of market fluctuations, the DCA makes it possible to smooth the average cost of acquisition.
Then, by sticking to a scheduled investment plan, the investor avoids being influenced by news or opinions that confirm his beliefs. This imposes a form of discipline, where a trading strategy leaves the individual in the grip of impulsive decisions based on current events or biased opinions. As an individual, it is naturally impossible to have all the information required to make a rational decision to buy or sell. Scheduled investment requires a longer-term vision, in order to avoid both FOMO (“Fear of Missing Out”), but also the loss of control in the event of a sudden fall (panic selling). Finally, the DCA avoids making hasty decisions in the event of strong price fluctuations.
In addition, the DCA makes the investor recognize that predicting price movements is difficult on Bitcoin. By establishing a regular investment plan, it promotes humility. This reduces the risk of making mistakes by assuming that you can beat the market by making timely decisions when you don't have enough information. It's a trap that most newbies fall into.
Stay humble, stack sats.
Finally, on a more personal level, the DCA frees you up time! If you use a tool like Bitstack, simply program the investment and then everything is done automatically. It requires no analysis, no information intelligence and no expertise. The DCA allows you to invest more peacefully, without stress and without wasting unnecessary time.
Why do a DCA in bitcoin?
Many people already naturally practice some form of DCA on state currencies. Indeed, when you put money aside in your Livret A, it means maintaining a form of recurring investment in euros. The problem with this type of savings is that they melt like snow in the sun over time due to the largesse of monetary policies. Each year, the European Central Bank sets an inflation target at a rate of 2%. In concrete terms, this means that the ECB wants to dilute the value of your money. The co-founder and CEO of Bitstack Alexandre Roubaud analyzes in detail this process of diluting the purchasing power of the euro in this article: Our mission at Bitstack.
Setting up a Bitcoin DCA allows you to avoid this phenomenon. It is a rare currency, as its issuance is strictly limited to 21 million units. The functioning of its peer-to-peer protocol assures us that this limit is not crossed, regardless of the political objectives of the central banks.
Finally, Bitcoin DCA brings together the best of both worlds. The DCA strategy allows you to quietly accumulate money effortlessly. And bitcoin, on the other hand, allows you to achieve this regular accumulation of capital in a rare and non-manipulable asset.
In practice, a Bitcoin DCA is very easy to set up in a few steps:
Determine the total amount you want to invest in bitcoin over a given period of time;
Choose how often you want to invest in bitcoin (once a day, once a week, once every two weeks, once a month...);
Divide the total amount by frequency to determine how much to invest at regular intervals;
Start your own Bitcoin DCA.
With Bitstack, you can easily and quickly set up your DCA, to build up recurring savings on bitcoin. All you need to do is install the app, create an account, and choose a payment method. You can then launch your DCA from €1 by choosing the investment interval that best suits you.
Bitstack also offers you another innovative DCA strategy: Automatic rounding. By activating this option on the application, you can set up an automatic rounding to the higher euro on all your daily purchases with your bank card. The difference is automatically converted to bitcoin. For example, a coffee purchased for €2.60 is rounded up to €3.00, and the €0.40 difference is automatically saved in bitcoin on the app. With this option, you can invest in bitcoin on a regular basis, just like with a DCA, but in a completely painless way.
Bitstack allows you to easily resell your saved bitcoins, directly in the application. You can also choose to remove your sats, in order to keep them yourself by Self-Custody. In this case, Bitstack does not charge any withdrawal fees, and takes care of all the transaction fees inherent to the Bitcoin network.
Conclusion
DCA is an investment strategy that is characterized by the purchase of an asset on a recurring basis, regardless of its price. It is an approach that minimizes the risks associated with market fluctuations. It is a more pragmatic and systematic vision of investment. It allows you to opt for a prudent strategy in order to expose yourself without stress to an asset over the long term.
The association of this investment method with bitcoin is particularly consistent. DCA allows you to easily accumulate capital, and bitcoin allows you to protect part of your savings over the long term.
Finally, I suggest you try it for yourself our recurring savings simulator in bitcoin on the home page of our website. You will be able to discover, for example, that if you had saved €25 each week for 5 years, you would have set aside €6,525, valued in bitcoins at €15,454 (at the time of writing this article).
