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DCA: learn how to use the strategy to protect yourself from the bear market

DCA: learn how to use the strategy to protect yourself from the bear market

Once again, the price of Bitcoin (BTC) operates lower this Thursday (13). With this movement, the cryptocurrency has already accumulated losses of 7.2% in the first two weeks of 2022. After all, did the market enter a falling phase or not, the famous bear market ?

Obviously, it's still too early to say that, as the year has barely begun. However, whether it's down or not, setting up hedges against BTC volatility can help get through these bad times. In this sense, one of the most winning strategies is that of DCA, known as Dollar Cost Averaging .

Slow and steady shopping

The term Dollar Cost Averaging does not have a very clear translation into Portuguese. In Brazil, many refer to it as “doing an average price”, while others use only DCA. The most important thing to note, however, is that the strategy fell in the taste of most national bitcoinheiros.

When investing using the DCA strategy, the investor divides the total amount to be invested into periodic purchases of an asset. The time of each purchase is chosen by the investor, which can be daily, weekly, fortnightly or monthly.

For example, imagine that you have R$20,000 to buy BTC, but you are afraid to make a single purchase and see new price drops. Using DCA, it is possible to divide this amount into smaller amounts, such as ten installments of R$2,000. After that, you decided to make monthly contributions.

Then, choose a specific day on which you will make each purchase – every 10th day. Once that is done, the strategy is set. Every month, for ten months, on the stipulated day, you will buy the respective R$2,000 in BTC, repeating the process until you complete the total investment of R$20,000.

Purchases take place at these regular intervals, regardless of what price the asset is at on the active day and at regular intervals. That's why a purchase can be made at R$200,000, another at R$240,000, a third at R$180,000, and so on.

Reducing market swings

In effect, this strategy removes much of the work from trying to find the “best shot”. By making constant investments, the price and volatility risk is diluted over time.

More importantly, the DCA has an important educational character: encouraging the habit of investing. With recurring purchases, the investor turns the act of investing into a habit, not a betting behavior.

Another advantage of the strategy is that it allows for buying on multiple bearish opportunities. The cheaper the asset is at the time of an investment, the lower the total average price of the investment. As a result, the long-term profits of the operation tend to be even higher.

DCA in Brazil: Hold BTC 100

Due to the lack of investment habits of Brazilians, the DCA strategy is little known here. But in recent years it has become the darling of the cryptosphere. Much of this success is due to the Hold BTC 100 project, which popularized the strategy and facilitated its access in the country.

Created by dentist Huberto Leal, the project brings together financial education – especially focused on BTC – and DCA in practice. The project began on October 10, 2019, when Leal announced his first contributions. On that day, the first R$ 100 reais were applied.

To optimize its strategy, Leal did not create a “drag up” course or complex price search algorithms. His instrument was as simple as possible: a spreadsheet in Google Docs. It contains the main data that make up the DCA strategy adopted by him:

  • purchase date;
  • contribution amount;
  • BTC quote on the date of purchase;
  • amount of satoshis purchased;
  • current value.

Every 10th, Leal publishes the results of the project on his YouTube channel, as well as new contributions. The original spreadsheet is also open and available for anyone to check the evolution of the strategy.

“The scope of the BTC 100 project is to clearly show the advantages of constant contributions, regardless of the price, because for those who believe in the long-term appreciation of Bitcoin and do not have the time or knowledge of technical analysis, there is no need to worry about finding better times to buy,” Leal told CriptoFácil.

triple-digit profitability

According to Leal, the project presented a very expressive profitability, driven by the appreciation of BTC since 2019. At the time of writing this text, the project has 28 monthly contributions, each worth R$ 100, totaling R$ 2,800 of gross investment.

At the height of the BTC appreciation, the project registered a profitability of 425%, that is, an accumulated total of R$14,704.00. However, as the price of the cryptocurrency has fallen sharply since then, this value has been greatly impacted.

Still, this did not diminish the profit of the DCA strategy. At the current price, the BTC acquired is already worth R$9,347.25, which means a return of 233% even during a time of market downturn.

This means that the DCA strategy is not only possible with small amounts, it has also proved successful in practice. As it does not require time in the search for complex analyses, the strategy serves as a great gateway for those who have little knowledge of the market.

It is advantageous to establish a date and amount that is consistent in the budget itself and to follow the plan. Whether high or low. Starting early and having consistency is what matters. It is the best way for those who want to start in this market”, explained Leal.

For those who want to build their strategy, Hold BTC 100 provides a blank version of the worksheet for download. Anyone can download it and set the date and value of their contributions, filling in the data over time. The project also has tutorial videos teaching newbies how to fill in the complete data.

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