Investing in any asset requires a strategy to achieve maximum profit. In crypto or stock investments, there is often mention of the Dollar Cost Averaging (DCA) investment strategy. This strategy is considered suitable for beginner investors who are not familiar with fundamental or technical analysis.
The DCA strategy is a practice of investing at regular intervals to reduce risk. Investors only need to invest in an asset in the same amount periodically. However, investing using the DCA strategy still requires the right approach to ensure optimal results. In this article, we will discuss the proper way to invest with the DCA strategy.
Article Summary
- 📅 The Dollar-Cost Averaging (DCA) strategy is an investment technique where investors invest the same amount at predetermined intervals. This strategy minimizes risk and helps mitigate investment decisions based on emotions or Fear of Missing Out (FOMO).
- 🔑 To effectively implement the DCA strategy, investors need to consider several factors including the type of chosen asset, investment frequency, investment amount, and investment goals. Discipline and timeliness are also key factors in implementing this strategy.
- 💵 The American company, MicroStrategy, successfully implemented the DCA strategy in their Bitcoin investment, owning 140,000 Bitcoin or approximately US$4.17 billion as of April 2023.
- 📱 PINTU offers an Auto DCA feature that facilitates investors in implementing the DCA strategy. With this feature, you can automatically buy crypto with a set date and amount.
Why Use the DCA Strategy?
Minimizing risk in investment is a primary goal for both investors and traders. Through the DCA strategy, investors can mitigate investment decisions based on emotions and the Fear of Missing Out (FOMO). With DCA, investors can implement investments in a single asset class and choose to invest a fixed amount weekly, monthly, or at designated times.
Read more: What is Dollar Cost Averaging?
Implementing the Right DCA Strategy
Before initiating an investment, several considerations need to be taken into account when investing in crypto assets using the DCA strategy:
- Which crypto to choose?
- How frequently will you be investing?
- How much funds will be invested?
- What is your investment goal?
Let’s say you want to invest in the crypto asset Ethereum (ETH). After selecting the asset to invest in, you then decide on the frequency of ETH purchases (daily, weekly, monthly) and the amount to be purchased in a given period. This investment in ETH indicates your intention to hold your asset for the long term.
The case study is as follows: starting in May 2020, you buy ETH worth Rp 1 million every month for 3 years, which will increase your initial capital of Rp 36 million to Rp 73,142,018. Over a period of 3 years, you've bought ETH and the value of your assets has increased by 103.17%!
Read more: FOMO and the Psychology of Crypto Trading
Key Principles of DCA: Discipline and Timing
The essence of implementing the DCA strategy is particularly beneficial for beginners who do not regularly follow market developments and have not yet mastered technical analysis. However, to maximize the profits from the investments made, an even more effective DCA strategy can be employed, which hinges on discipline and the right timing for investment.
- Discipline: Investors need to be disciplined and focused on the predetermined investment strategy, period, amount, and assets to be invested.
- Courage to Start: Begin investing in any amount and make it a habit.
- Right Timing: To maximize profits, the timing arrangement in the DCA strategy becomes crucial. In addition to investing at the same time regularly, flexibility can also be incorporated into the DCA strategy, where you need to know when is the right time to enter the market.
A simple example of the flexibility that can be implemented in the DCA strategy is if the focused crypto asset has been increasing for several consecutive days, there might be a price correction for that token or coin shortly. Therefore, for executing DCA, you can wait until this correction occurs.
MicroStrategy’s DCA Strategy
Dollar-cost averaging example is implemented by MicroStrategy, an American company involved in business intelligence (BI), mobile software, and cloud-based services. As of April 5, 2023, MicroStrategy owned 140,000 bitcoins, valued at $4.17 billion, with an average purchase price of $29,803 per bitcoin.
MicroStrategy employs a flexible yet disciplined DCA strategy that focuses solely on Bitcoin as an investment asset. While the latest report on their gains from bitcoin purchases since 2020 has yet to be released, MicroStrategy provides a real-world example of the application of DCA to crypto investing.
Conclusion
Crypto dollar-cost averaging (DCA) is an effective risk-mitigating investment approach, especially for novice investors. By investing the same amount regularly, investors can avoid emotional decisions and the fear of missing out (FOMO). However, to maximize profits, discipline, and precise timing are key to implementing the DCA strategy. Investors should consider the asset selected, the investment frequency, the amount of money invested, and their investment goals.
A prime example of a successful DCA strategy is MicroStrategy, an American company that has invested heavily in Bitcoin. MicroStrategy uses a disciplined and focused DCA approach and has made significant gains. This demonstrates that with discipline and the right strategy, DCA can be a powerful tool in an investment portfolio.
Read more: 5 Strategies to Invest in Cryptocurrency
Auto DCA Feature on the PINTU App
If you are ready to invest in crypto and use the DCA strategy, the PINTU app has a special Auto DCA feature.
The Auto DCA feature is frequently utilized by investors. With this, you can automatically buy crypto on a specific date for a certain amount. If you don’t have the time to buy manually, this is the perfect feature for you.
You can try the Auto DCA feature directly by downloading the PINTU app, a platform for buying selling, and investing in crypto assets in Indonesia that is officially registered with the Indonesian Commodity Futures Trading Supervisory Agency (BAPPEBTI) and supervised by the Ministry of Communication and Information (Kominfo). Start investing with just IDR 11,000.
Disclaimer:
This content is intended to expand the reader’s knowledge. Always conduct personal research before investing and use funds that you can afford to lose. All buying and selling activities and investments in crypto assets are entirely the reader’s responsibility.
References
- Andrey Sergeenkov, What Is Dollar-Cost Averaging (DCA)?, Coinmarketcap, accessed on 30 May 2023.
- Tim Fries, MicroStrategy Bought 1,045 More Bitcoins, Now Holds 140,000 BTC, Tokenist, accessed on 30 May 2023.
- Jordan Tuwiner, MicroStrategy Bitcoin Holdings Chart & Purchase History, Buybitcoinworldwide, accessed on 30 May 2023.
- Tradingview, MicroStrategy – Bitcoin Holdings Chart & Purchase History, accessed on 30 May 2023.
- Ehsan Yazdanparast, The Art of Dollar-Cost-Averaging, Medium, accessed on 30 May 2023.