When is the best time to invest in crypto?

How does DCA work in practice?

Of course, the success of any DCA strategy is still subject to what’s happening in the market. To demonstrate, let’s dig into an example using real-world prices, right as they approached Bitcoin’s biggest downturn to date. If you invested $100 in bitcoin every week starting on December 18, 2017 (near that year’s price peak), you would have invested a total of $16,300. But on January 25, 2021, your portfolio would be worth approximately $65,000 — a return on investment of more than 299%.

In contrast, going “all in” as prices are peaking is generally considered a bad idea — but how could you know? If you had taken that same amount of $16,300 and invested it all on December 18, 2017, you would lose nearly $8,000 throughout the first two years. Although your portfolio would recover, you would have lost out on the ability to compound your profits in the meantime (and maybe even scared yourself into selling your bitcoin at a loss).

Now let’s say you waited a year, and invested $200 in bitcoin every month between December 2018 and December 2020. In this case, your portfolio would total just over $13,000 in 2020, compared to $23,000 from investing lump-sum. This “all-in” investment would have earned you a higher profit, but it also would have been riskier: any significant price movements after your initial investment date would have affected your whole investment.

Dollar-cost averaging is all about hedging your bets: it restricts your potential upside in an effort to mitigate possible losses. Serving as a potentially safer choice for investors, it works to reduce your chances of taking serious hits to your portfolio caused by short-term price volatility.

To know if DCA is the right strategy for you, it’s important to think about your unique investment circumstances. It is always best to consult a financial professional before undertaking a new investment strategy.