Why Dollar-Cost Averaging Wins In Crypto (Even When The Market’s Hot)

With bitcoin trading near $100,000, it’s easy for folks to feel like they’ve missed the boat. Buying into an asset that’s already multiplied fivefold in two years can feel a bit sketchy (and it should). Still, if you’re looking to add some crypto to your investment mix, dollar-cost averaging is likely the smarter way to do it. Let me explain why…

What’s the benefit of dollar-cost averaging?

Dollar-cost averaging (DCA) is essentially investing a predetermined amount of money at regular intervals in certain assets, no matter the price. And in crypto, that strategy tends to shine. The market is notoriously volatile – boom-and-bust cycles are part of the game. During the brutal bear markets, DCA allows you to stock up when prices are low. Then, when things start to recover, those cheaper purchases can pay off big.

DCA also takes the pressure off trying to time the market, which can be better for your emotions and your portfolio. The strategy lets you ride out volatility and steadily build a stronger position – without going all-in at the wrong time.

How does the data back it up, then?

Let’s wind the clock back to November 2021 – the peak of the last crypto bull run – and assume that’s when you started DCA’ing $100 per month into bitcoin. At the start of that month, you’d have made your first investment and bought when bitcoin was at $61,359. That same month, bitcoin hit its bull market top of around $69,000 a coin (but, of course, that never seemed like “the top” at the time). Still, you’d have stuck with your DCA strategy and kept stacking bitcoin each month, for 38 months, until the end of last year. By that point, you’d invested a total of $3,800 into the OG crypto.

Now check out the chart below. The straight dotted line shows the total cash you invested, while the orange line shows the value of your DCA bitcoin investment. You’d have been underwater at first (orange line below the dotted line), as bitcoin trended deeper into the crypto abyss. But from mid-2023, you would have started to recover those initial losses and would then break even (orange line above the dotted line).

The investment period started on November 1st, 2021, at a bitcoin price of $61,359. Source: Portfolio Visualizer.

And here’s where things get interesting: in mid-2023, bitcoin was trading somewhere between $25,000 and $30,000 – well below your first entry point in 2021 near $60,000. But the crypto spent many months trading at lower levels before that, and you were accumulating more of it near those lows. By the end of last year, your investment was worth $10,768 – nearly three times what you put in overall ($3,800). Meanwhile, if you’d invested the full $3,800 upfront (gray line), you’d have “only” $5,813 to your name.

Okay, so what about ether and altcoins?

Unlike bitcoin, ether and many other altcoins are now trading below their 2021 bull market highs – so you’d still be underwater if you went all-in upfront. But if you DCA’d $100 each month over the same 38 months (again, $3,800 in total), your ether investment (green line) would be worth $6,150 by the end of last year. That’s a decent gain, considering a $3,800 upfront investment (gray line) would be worth just $2,957.

The investment period started on November 1st, 2021, at an ether price of $4,256. Source: Portfolio Visualizer.

I also ran the numbers with Cardano (ADA) because it was a top-performing crypto during the last bull run (but got hammered on the way down). And here, the results are even more striking: the DCA investment (blue) almost doubled to $7,332 by the end of last year. The upfront investment, though, almost halved to $1,631.

The investment period started on November 1st, 2021, at an ADA price of $1.97. Source: Portfolio Visualizer.

What’s the opportunity here?

No one knows for sure whether the top is in for this crypto bull run – I mean, I could give you a logical argument either way. If the top is indeed in (or close by), then dollar-cost averaging is clearly the wiser play. But if crypto’s still on the ascent, you’ll at least capture some upside by embracing the DCA strategy.