Binance founder Changpeng Zhao says dollar-cost averaging is the key to building wealth in crypto. He explains why DCA works and the risks of sticking with it.
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Binance founder Changpeng Zhao has again pushed dollar-cost averaging, the investment method better known as DCA.
CZ told his followers on social media that understanding DCA is central to building wealth through crypto. He wrote: "DCA (If you don't know the term, better google it. You can't get rich without knowing some basic financial terms)."
The post came after a discussion about the best time to enter the market for long-term investors. CZ has repeatedly argued that trying to time market bottoms is extremely difficult. He has promoted DCA for years. In a 2023 post, he explained that investors who want to "buy low, sell high" must be willing to buy when markets are depressed. He has also responded to Bitcoin advocate Michael Saylor's posts about accumulating Bitcoin, saying that "DCA works" and "DCA wins."
Dollar-cost averaging involves investing a fixed amount of money at regular intervals, ignoring the asset's price. An investor who puts $500 into Bitcoin every month buys more Bitcoin when prices are low and less when prices are high. If Bitcoin falls from $100,000 to $50,000, the same $500 buys twice as much.
CZ said DCA removes much of the emotional aspect of investing. Investors often become overly optimistic during bull markets and overly fearful during crashes. That cycle leads people to buy after prices have surged and sell after prices have collapsed.
DCA reduces the risk of entering the market at the wrong moment. It does not eliminate that risk. The strategy can underperform lump-sum investing during euphoric bull market phases. DCA also does not protect against choosing the wrong asset. The method works best for assets with long-term potential, CZ has said.
Psychological discipline is another challenge. Sticking with DCA for years is harder than it sounds.
For Bitcoin, DCA has produced strong returns over long periods, according to backtest data cited by proponents.
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