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# Dollar Cost Averaging (DCA) Meaning

May 5, 2023 | Updated Mar 18, 2024
Dollar Cost Averaging (DCA) is a strategy that involves investing a fixed amount in any asset like digital asset at regular intervals.

## What is Dollar Cost Averaging In Crypto?

Dollar Cost Averaging (DCA) refers to regularly investing smaller, fixed amounts of money in a specific digital asset (i.e. purchasing \$30 worth of Bitcoin every week).

With dollar cost averaging, investors buy a set amount of the asset over a period of time, rather than all at once. As a result, the investor buys a set unit of the assets regardless of the price of the asset being invested in. By entering the market gradually, the investor has the potential to purchase the asset at a lower overall cost than if they had bought a large amount of the asset in a single trade.

Here’s an example of dollar cost averaging:

Ogee and Gigi both intend to buy at least 1 BTC each. Let’s say that 1 Bitcoin is currently valued at \$10,000. Ogee uses all his investment money to buy 1 BTC at the current price.

Gigi, on the other hand, decides to apply the dollar cost averaging technique and spreads the fund over 10 months, purchasing \$1,000 worth of Bitcoin each month. For the first month, she purchases 0.1 BTC when Bitcoin retails at \$10,000. Over the succeeding months, the price of 1 BTC goes from \$10,000 to \$8,000, \$9,000, \$6,000, \$11,000, \$7,000, \$9,000,  \$12,000, \$11,500, and \$9,000, respectively.

Here’s how much BTC Gigi bought each month:

• Month 1: \$1,000 / \$10,000 per BTC = 0.1 BTC
• Month 2: \$1,000 / \$8,000 per BTC = 0.125 BTC
• Month 3: \$1,000 / \$9,000 per BTC = 0.1111 BTC
• Month 4: \$1,000 / \$6,000 per BTC = 0.1667 BTC
• Month 5: \$1,000 / \$11,000 per BTC = 0.0909 BTC
• Month 6: \$1,000 / \$7,000 per BTC = 0.1429 BTC
• Month 7: \$1,000 / \$9,000 per BTC = 0.1111 BTC
• Month 8: \$1,000 / \$12,000 per BTC =  0.0833 BTC
• Month 9: \$1,000 / \$11,500 per BTC = 0.0869 BTC
• Month 10: \$1,000 / \$9,000 per BTC = 0.1111 BTC

To find how much BTC Gigi had by the end of the tenth month, we add up all the purchases over the months:

0.1 BTC + 0.125 BTC + 0.1111 BTC + 0.1667 BTC + 0.0909 BTC + 0.1429 BTC + 0.1111 BTC + 0.0833 BTC + 0.0869 BTC + 0.1111 BTC = 1.0191 BTC

## Dollar Cost Averaging Benefits

• Risk reduction – By investing a fixed amount at regular intervals, DCA can help to smooth out the impact of market volatility on the overall portfolio.
• Simplifies process – By setting up a process, it reduces the need to constantly monitor market movements and streamlines the investment process.
• Helps avoid FOMO – Using DCA can help you stay disciplined and avoid making impulsive purchases, like FOMO-buying, which is common for new investors.

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