Written By
Ted Stevenot
Dollar-cost averaging (DCA) is a time-tested strategy for saving and investing used by millions worldwide. While useful for acquiring any asset you think will grow in value in the long run, it’s especially popular with bitcoin savers laser-focused on “stacking sats.”
With a DCA strategy, you purchase bite-sized pieces of a target asset on an ongoing basis (e.g., weekly, bi-weekly, monthly, or quarterly). Buying in this way spreads your purchases over a longer period, which tends to lessen the impact of short-term price fluctuations.
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You typically make purchases in fixed-sized amounts—using the same dollar amount each time you buy (e.g., $50, $100, or $200 per week). If the asset in question is on a long-term upward trajectory, this will cause you to buy fewer units of your target asset when the price is high and more units when the price is low.
As you can see in the above example, each purchase of $100 buys a different number of sats (a sat is 100 millionth of a bitcoin) depending on the bitcoin price. As bitcoin's price fell in March and April, you would have been able to purchase dramatically more sats. Over time, this would lower your average price per bitcoin.
Many people confuse “buying low and selling high” with buying and selling at a market bottom or top. The reality is that the occurrence of a true market low or high is usually determined through hindsight. With a DCA approach, there’s little need to worry about timing the market.
Saving and investing, like life, advances in cycles. Sometimes the sun shines and sometimes the rain falls. Dollar-cost averaging tends to remain consistent; during the inevitable ups and downs, it provides a buffer to the constant voices of irrational exuberance and fear.
An unintended consequence of the modern financial era is the near-disappearance of “savings” as a common pursuit. Systematically buying and holding bitcoin via a DCA strategy reintroduces the viability of setting aside savings as a prudent practice.
This article is provided for educational purposes only, and cannot be relied upon as tax or investment advice. Unchained makes no representations regarding the tax consequences or investment suitability of any structure described herein, and all such questions should be directed to a tax or financial advisor of your choice.