If you frequent crypto forums or investing forums, you’ve probably come across the term Dollar-Cost Averaging (DCA) before. But what exactly is DCA, and how does it affect your journey in the crypto and Web 3 world? Find out all about this popular strategy with Thunder Academy!

What is it?

The idea is simple. Dollar-cost averaging is an investing strategy that aims to minimize the impact of a volatile market on your investment by splitting the original amount into smaller amounts to be invested at regular intervals instead of all at once. Sounds complicated? Here’s an easy example:

Bobby wants to invest $1000 into $TT. With DCA, instead of investing $1000 all at once, Bobby invests $100 into $TT every week over 10 weeks. 

There are also variations to DCA where instead of investing the set $100 every week, Bobby instead invests increasing amounts or decreasing amounts depending on his needs. The core idea remains, however, which is to invest with a predetermined value at predetermined intervals. 

The concept of DCA revolves around regular investments instead of trying to time the market. As an old saying goes, “It’s not about timing the market, but about time in the market”.

Why Do People DCA?

As mentioned above, a large part of why people DCA is to minimize the impact of volatility. The crypto market can be described as very volatile, and DCA can help investors throw out the fear of having missed the highest point to sell or the lowest point to buy in. 

For those who are well acquainted with the pains of investing, we’ve all had those hindsight moments where we look at the charts and agonize over not maximizing our profits. This leads to them building more fear of the volatility and often hamstrings themselves whenever they see the charts rocket or dive. The fear is often what causes investors to make panic decisions as soon as they notice a change in the market.

DCA leaves emotion at the door and solves these “fear” issues by making everything predetermined. You don’t have to worry about when you want to buy more assets as you’ve already set a date or interval for it. Many crypto exchange apps even offer the option to automatically DCA for you; all you have to do is choose your preferred settings.

One thing to note, however, is that your DCA should still follow regular checkups or adjustments. That is to say, instead of investing a regular $100 every week indefinitely, you should evaluate your holdings and financial situation periodically to better determine the best amount and interval for you. Also, choosing DCA as your main strategy doesn’t mean you can’t follow the hype and try to time the market for the thrill. It’s simply an OPTION that you can choose and follow or even mix into your arsenal of different investment strategies.

Why is this Relevant?

DCA is always relevant as long as there are those wanting to invest; especially if you prefer a strategy that seems more stable. Another reason why DCA is more relevant right now is due to the influx of new investors. With 2024 just starting and with recent bullish trends, new investors are flocking to the market, and many of them are either looking for a strategy to follow or have tasted the pains of market volatility. Knowing what DCA is can be an incredible tool to help you balance your investments!

What are the Pros and Cons?

Here’s a short and simplified rundown of what you can expect in terms of the pros and cons of DCA:

Pros

Lessen impact of volatility: DCA makes it so you don’t have to worry about bad timing. Your investments are all decided beforehand.

No emotion, no panic: Leaving emotions at the door can help with more than just avoiding bad timing. It helps establish healthier investment habits that steer you away from feeling like you’re gambling.

Cons

Fear of missing out (FOMO): The whole idea of DCA makes it so you are likely to miss out on the highest peaks to sell or the lowest point to buy. This can cause certain users to have FOMO.

More fees: Because you are investing at more frequent and regular intervals, you could encounter more fees. Be sure to do some calculations!

About ThunderCore

​​ThunderCore is an EVM-compatible blockchain featuring a breakthrough consensus protocol, PaLa, allowing lightning-fast efficiency. With users in more than 100 countries, this blockchain emphasizes a growing global reach. ThunderCore offers a native currency, TT, and nurtures an innovative ecosystem within the TT Wallet mobile app.

What’s Next?

Investing in this space can be scary, but Thunder Academy is here to help you through it! Catch us next time on Thunder Academy, and watch out for other articles we may have.

Disclaimer

Remember that this article should not be treated as financial advice! Proceed with caution.