What Is Dollar Cost Averaging?
| KEY TAKEAWAYS: |
| — Dollar cost averaging is an investment strategy that allows you to strategically plan your long term holdings by buying assets at fixed time intervals. —. A DCA strategy allows you to invest strategically over time without worrying about timing the market or reacting to every price swing. — Now you can DCA on Ledger Live with our latest providers Mercuryo and BTC Direct. This means you get the safest and most seamless experience when you DCA. |
Dollar Cost Averaging (DCA) is a smart strategy to keep in your toolkit when investing in crypto. It helps you avoid impulsive decisions driven by FOMO or FUD, and navigate market volatility,and allows you to spread your budget safely over time.
What Is Dollar Cost Averaging (DCA)?
DCA is an investment strategy in which you divide your budget and invest it into a stock/asset across a larger time frame, allocating a small amount from that budget each day, week, or month (or a similar time scale of your preference).
Instead of trying to time the market, DCA allows you to steadily build your position over time, reducing the impact of short-term price fluctuations and helping you stay disciplined regardless of market conditions.
What Happens When You Use DCA?
The most important thing that you need to remember is that you mitigate the risks associated with market volatility by doing so, which safeguards your investments. When you are buying out any asset, not just crypto, you want to minimize the effects volatility could have on your profits. That’s what DCA is doing for you.
So, how does this reduce your risk? It’s simple—by spreading your investments over time, you’ll occasionally buy at higher prices, but you’ll also catch the market during dips and more stable periods. This helps average out your entry price over the long run, so you’re not relying on perfect timing or risking a lump sum on a single, potentially overpriced day.
This way, you’ll average out your inputs, which is the safest overall strategy.
The Pros and Cons of DCA
Before you make a decision towards a “set-and-forget” DCA strategy, there’s some key things you might need to consider.
| Pros | Cons |
|---|---|
| Reduces Emotional Decision-MakingInvesting a set amount regularly helps remove emotions from the process, you’d be making smarter decisions over a longer span of time—preventing impulsive decisions (and potential losses) based on market fluctuations. | Possibly Lower Returns in Rising MarketIn a consistently rising market, DCA might yield lower returns compared to a lump-sum investment made at the beginning of the uptrend. |
| Mitigates Poor Market TimingBy spreading investments over time, DCA reduces the risk of making large investments at unfavorable times, such as market peaks. | Reduced FlexibilityCommitting to a fixed investment schedule may limit the ability to take advantage of other investment opportunities or adjust strategies based on market conditions. |
| Averages Purchase CostRegular investments mean buying more assets when prices are low and fewer when prices are high, potentially lowering the average cost per unit over time. | Does Not Guarantee ProfitDCA does not protect against losses in declining markets. Say you DCA into a certain blockchain and tomorrow it starts spiraling downwards in value, your long-term strategy no-longer holds any value, nullifying your investments across time. |
| Accessible for All BudgetsDCA allows individuals to start investing with smaller amounts, making it suitable for those without substantial capital. |
Why DCA on Ledger Live
Ledger Live allows you to invest a fixed amount regularly, smoothing out price fluctuations and building your portfolio steadily over time. Best of all, your assets are protected by Ledger’s industry-leading security, giving you the confidence to invest without worry.
Plus, it’s convenient—you can track all your transactions and holdings in one place without needing to juggle multiple platforms.
What’s more is that if you’re on a next-gen Ledger device, you benefit from the secure touchscreen and its ease of use when verifying transactions. Clear signing is implemented for all native apps on Ledger Live.
How To DCA In Ledger Live
One of the standout benefits of using Ledger Live for DCA is the security it offers. Thanks to Ledger’s hardware wallet integration, your investments are protected with top-tier security.
These providers are fully integrated into Ledger Live, allowing you to automate your crypto purchases effortlessly. With DCA, you can set up recurring buys—investing a fixed amount in your chosen cryptocurrency at regular intervals. This approach helps reduce the impact of market volatility and allows you to build your crypto portfolio steadily over time.
Making DCA Easy With Automation: A Short Guide
Mercuryo and BTC Direct
Ledger Live has expanded its offerings for DCA in crypto. Our latest third-party providers, Mercuryo and BTC Direct, now make it possible to set up DCA strategies directly through Ledger Live! Whether you prefer one provider over another, the flexibility to choose makes DCA more accessible than ever.
If you haven’t already, you’ll need to buy some crypto on your Ledger device.
Next, you can set up DCA via Ledger Live with Mercuryo or BTC Direct:
- Open Ledger Live and go to the Discover section.
- You can then either scroll down or use the search bar to find Mercuryo or BTC Direct integrated apps within this section, choosing either one will lead you to the interface and next steps.
For instance, if you selected Mercuryo, you will then be prompted to select the digital asset you would want to purchase.
Note – BTC Direct currently supports only EU regions. - Select your preferred currency after this step. You will then need to press the dropdown button next to the location settings to open a new screen in order to select recurring purchases.
- Select the option ‘Recurring Purchases’ on the dropdown menu, as shown below.
- Next, follow the in-app instructions to configure your recurring purchases. Both, Mercuryo and the BTC Direct apps on Ledger Live, will guide you to set your DCA strategy to your convenience.
You can then either scroll down or use the search bar to find Mercuryo or BTC Direct integrated apps within this section, choosing either one will lead you to the interface and next steps.
For instance, if you selected Mercuryo, you will then be prompted to select the digital asset you would want to purchase.
Making DCA Easy With Automation
DCA’ing can feel like a chore if you don’t set it up right—you might forget to invest or get tired of making those small payments over and over. Why not just automate it and save yourself the hassle?
Well, with Ledger Live, you can do just that.
StackinSat
StackinSat is a stand-alone web tool created in 2020 that allows you to purchase Bitcoin easily and also automate the purchase of Bitcoin. StackinSat takes your inputs, i.e. how frequently and how much you want to invest, and then auto-manages your Bitcoin investments.
It is now possible to DCA Bitcoin on Ledger Live with StackinSat.
Get Involved!
If you’re on the lookout to add tactics to your crypto-toolkit you should definitely stop by and consider the “Dollar Cost Averaging” aisle. It’s an easy-to-grasp tool that could help you buy crypto more efficiently in the long run.
Exchange, lending, and other crypto transaction services are provided by third-party partners. Ledger provides no advice or recommendations on the use of these third-party services. Do your own research.
Want to know more about crypto? Then check out our School of Block episode, where we explain the basics of money, value and crypto.