Dollar Cost Averaging: The importance of Hedging Bets against a Volatile Market

Dollar-cost averaging (DCA) is a savvy way to tame crypto’s wild volatility. The strategy is widely attributed to Benjamin Graham, an influential economist and investor often referred to as the “father of value investing.” While he didn’t coin the exact phrase “dollar-cost averaging,” Graham popularized the concept through his writings and teachings, particularly in his book The Intelligent Investor (first published in 1949).

With crypto assets in focus in our latest Crypto Insights article, we’ll show examples and modeling of how DCA keeps your investment steady when prices flip like a coin and markets shift fast. In simplest terms, DCA is like filling your gas tank: $40 every Monday, whether gas is $5 or $3 a gallon, keeps your average spend steady and in more volatile times means you have more gas than if you filled it for the whole month.

Example of Lump Sum Buying

sourced Yahoo Finance

Example of Dollar-Cost Averaging Buying

Recent Bitcoin value decline analysis over 4 weeks starting Jan 28th – 18th of Feb

As you can see, we are still down on our initial investment, but through using a Dollar-Cost Averaging strategy during this volatile time for Bitcoin, we have both more BTC in our wallet and a cumulative loss of less than if we had bought a lump sum. The market will likely bounce back, and that 038612 BTC will be an ample additional profit on our initial investment. Let’s do some analysis on that:

Example of Return on DCA Return at Peak Price

Based on Bitcoin value at peak

Above you can see the profit gain from the DCA strategy

While there are no guarantees with crypto, it is fair to assume—based on industry insights and real-world applications for decentralized finance—that Bitcoin will rise above its peak.

Important acknowledgments

When the crypto market is buoyant and on an upward trajectory, DCA is likely to be less effective, and lump-sum investing will more likely result in greater returns. So, it is by no means bulletproof, but it does mitigate massive losses on market dips and is a consideration, particularly when investing in more volatile cryptocurrencies.

Dollar Cost Averaging is of course a well observed investment strategy and not crypto specific and has been used by financial institutions for many years, below we have shown a hypothtical example from Merrill Lynch A Bank of America Company.

Lump Sum investment in 2021 November at height

A real example where of Dollar Cost-Averaging shines is the November 2022 Bitcoin Crash which will explore below for full clarity.

If you held on until the 28th of Feb 2025 you would still make a small profit even with the bitcoin price dropping substantially however in any market liquidity is your friend and having your investment tied up for 4 years for a $15,309.95 profit isn’t exactly a winning strategy. Now if we contrast this to a Dollar Cost-Averaging Strategy let’s see what return we get from some simple modelling on approximate historical prices:

Dollar Cost-Averaging Return

Because we brought in monthly increments of 13 months from the 2021 height to the 2022 drop we have net 1.472663 more bitcoin than if we had brought a lump sum underscoring the advantages of Dollar Cost-Averaging.

El Salvador’s Bullish DCA Bitcoin Strategy

The President of El Salvador famously announced back in November of 2022 that the country would be buying one Bitcoin every day from the 18th of November 2022 with this strategy being paused on the 18th of February 2025. So let’s review what the “Philosopher King” of El Salvador may have made for his country with this investment, reported figures are as follows:

• March 2024 ($84 million profit, Bitcoin over $69,000): This reflects widely reported gains when Bitcoin hit its then-high in early 2024, tied to El Salvador’s holdings (around 2,861 BTC at the time) and President Nayib Bukele’s public statements.
• September 7, 2024 ($31 million profit, Bitcoin at $54,300, 5,865 BTC): This aligns with estimates from mid-2024 when Bitcoin dipped, and El Salvador’s holdings had grown through its 1 BTC/day strategy started in November 2022.
• November 10, 2024 ($203.10 million profit, Bitcoin ~$80,000, 5,930.77 BTC): This matches reports of Bitcoin’s rally in late 2024, with updated holdings reflecting continued purchases.
• December 5, 2024 ($333 million profit, Bitcoin over $100,000, 6,180 BTC): This corresponds to Bitcoin surpassing $100,000, a milestone widely discussed, with El Salvador’s stash peaking at 6,180 BTC per Bukele’s updates.

Source: President of El Salvador Nayib Bukele X account

Conclusion

In the crypto world, DCA can prove a winner in times of market decline like we have seen the past month, offering a cushion to losses and additional BTC to cash out for extra value when the market bounces back. While the market is volatile and there are no guarantees, it is clear to see that Dollar-Cost Averaging has its uses within the crypto world as well as more traditional investments.