For the average investor, jumping on an exchange setting limit orders, stop losses, and trying to apply some technical analysis to the chart is a daunting task. The fact is, most people just don't want to do this. As much as I love Bitcoin and the cryptocurrency ecosystem, I don't even really like doing it those things either.
If you are like me, and you are more of an investor (not a day trader that loves looking at charts for 14+ hours a day) looking to get some exposure or diversify a bit into Bitcoin, the best way is using the “Dollar Cost Averaging” method. In this quick break down, I give you the basics of how dollar cost averaging works in cryptocurrency and how you can easily do it for Bitcoin right now.
What Is Dollar Cost Averaging?
There are a LOT of great articles out there on Dollar Cost Averaging or “DCA” for short. Simply put, it is just buying a set amount of something over time on a set schedule. This strategy helps you to minimize your risk and also helps “average” out the volatility of the thing you are buying across time.
An example would be buying $50 of Bitcoin each week on Monday for 6 months. We all know the price of Bitcoin fluctuates quite a bit (this seems to turn a lot of investors off for some reason, but it's not necessary a bad thing!), so buying the same amount regardless of the price helps to reduce your exposure to the volatility over time.
Dollar Cost Averaging has been used for traditional assets like stocks for quite some time, so why not use it for Bitcoin right?
Not only does it help in your risk exposure, but it actually also helps with your mental health! Instead of worrying about the price of Bitcoin, checking the price of Bitcoin, loosing sleep over the price of Bitcoin, you can just kind of set it up and forget about it. You essentially remove emotion from the equation of investing in Bitcoin and it allows you to think in more long term investing terms.
Dollar Bitcoin Cost Average (BCA)
First, let's throw out that dirty word, “dollar”, from this and I want to start calling it “Bitcoin Cost Averaging” or BCA for short from now on. Setting up your Bitcoin Cost Averaging is actually quite simple. Now that we know why this strategy is important to the “investor” class, let's take a look at how you can easily accomplish it.
To get started, you could of course just do manual buys of Bitcoin on your favorite exchange or app like the Cash App. The only problem with this is if you forget, or get tempted by the dark side! I love a good automated solution for something like this that takes the headache and hassle out of things for that true “set-it-and-forget-it” strategy.
There are a few solutions out there that are more complex like bots that you can setup, but that can be tricky so for this tutorial I am going to show you how to Bitcoin Cost Average using the Coinbase platform.
If you are familiar with anything in crypto, Coinbase would be my guess as the most widely used by the average investor. Here is a quick break down of how to set up your Coinbase for dollar cost averaging for Bitcoin.
- Log into your Coinbase account and find the “TRADE” button at the top right of the screen.
- The Trade interface is simple, make sure you have it set to Bitcoin and below that where you want the money to come from. You can choose your attached bank account or if you have USD in your wallet on Coinbase that works great too.
- Find the little clock symbol and hover over it for the recurring buy options. You can choose daily, weekly, 1st & 15th, or monthly to dollar cost average your Bitcoin buys.
- Hit Preview Purchase and you will get a screen like this that confirms your reoccurring buy for the amount you chose (I used $20 each week and I started on a Monday). Hit Buy Now to complete your set reoccurring Bitcoin buy.
- All done! This same purchase will now be made every Monday for $20 of Bitcoin regardless of the price.
Pretty simple right? As I have found, most people just want a little exposure to Bitcoin in their portfolio and using Dollar Bitcoin Cost Averaging is really the best way to invest into cryptocurrency without having to learn trading, charts, technical analysis and more. The goal here is to have enough funds for at least 6 months if not 1 year of consistent investing.
If you want to dive a bit deeper on Bitcoin Cost Averaging, I found this great site called DCA Bitcoin by John Cantrell that you can plug some numbers into and it shows your potential returns using backtested data. It's fun to play around with!
Now the next real step is to move your Bitcoin to your own private wallet (Coinbase is NOT a private wallet, they hold your Bitcoin for you just like a bank). I could write a whole article just about moving your Bitcoin to your own wallet so I won't go into much detail here, but if you have questions about BCA or moving your Bitcoin to your own wallet just drop me a comment here or send me an email!
I really hope this quick tutorial on Bitcoin Cost Averaging was helpful! More great Bitcoin content coming at you soon, but until then…
‘Stache That Crypto Friends!