Don’t wait for the bounce, dollar cost average the corn
or why Ashdrake would likely be still around if he used a different strategy
Many people in crypto enjoy trading it. The volatility, bearish and bullish enthusiasm seemingly switching multiple times each day. Exchange hacks, ICO’s (now rebranded to IEO’s), powerful fundamentals and an environment where TA still provides a decent advantage to those that care about staring at charts.
I enjoy the excitement about most of these activities and experienced a lot of the opportunities these markets offer. This article is about something different though. Let me introduce you to the boring but effective strategy that is likely responsible for the fact that i am still around and how i use it. It’s called DCA, short for “Dollar Cost Averaging”.
The overall process is very simple:
- Send money (SEPA) 🏦
- Buy Bitcoin ₿
- Send BTC to your own wallet 👛
- Enjoy the summer 🏖
After reading this short article, you should be able to decide if DCA is something you want to look into and if so, how to do it in a convenient and secure way.
Dollar Cost Averaging?!
DCA in general is an investment strategy where you make regular incremental investments over time instead of making a one-off lump sum investment. The main goal is to reduce the effect of asset volatility on your returns.
DCA is commonly used when markets are in a downward trend (like the crypto markets for the past 1.5 years) but can also be very effective in bullish markets. There are many options even within a simple DCA strategy that would blow up this article in pointless ways. This investopedia article has the most relevant facts and Alex Sunnarborg has published an excellent one here and if you are more into Youtube than reading #SatoshiMoku — CarpeNoctom has published a related video recently.
DCA in crypto
They say it’s hard to catch bottoms and at least for me it’s true. By definition dollar cost averaging means that you will be accumulating more $BTC at lower price levels. After getting that out out of the way, the first question people typically ask is “When should i start buying?” followed by “Should i buy monthly, weekly or even on a daily basis?”
As usual, the answer to that question depends on your preferences and tools you want to use. The following website has a simple calculator that you can use how DCA would have worked for you with various amounts.
Don’t worry too much about your timing. Play a bit with the calculator and commit to a certain amount of money you want (and can afford to) spend on a regular basis.
It’s key and basically the only important rule that you can afford these regular payments and you don’t have to worry about it, no matter what the market does on a short or even mid term basis. If you violate this rule, you will likely find yourself sucked into a portfolio management app daily (hourly) and not getting enough sleep in no time. You don’t have to believe me, but i have to tell you i’ve seen it a lot. It really changes people, usually to the worse.
Pick an amount and interval for buying
This is the homework you have to do, some easy examples based on the numbers provided by the calculator
- If you had saved $20.00 for buying $BTC every week starting in January
2016, you would have 2.7557 bitcoin worth $22,048.89 today. - If you had saved $160.00 for buying $BTC every month starting in January 2017, you would have 1.4882 bitcoin worth $12,728.82 today.
- If you had saved $3.00 for buying $BTC every month starting in January 2018, you would have 0.2672 bitcoin worth $2,039.89 today.
As you can see, there’s an option for almost everyone to get started ;-)
Another new and great looking website was just launched by John Cantrell.
I had to laugh for quite a bit after reading a specific reply to his announcement :D
How to buy bitcoin with DCA
Back in the early days i simply put a regular task on my todo list and buy bitcoin manually on an exchange of my choice. This strategy still works very well and if you don’t want to use any additional tools but your existing exchange accounts it’s going to work pretty fine.
Automated DCA, nerd style
Another option is to use one of the “bots” that you can run yourself to buy at certain levels. As usual, my recommendation is to use open source software for anyone going that route.
For example, this node script lets you set a daily amount to invest on crypto currency (Bitcoin in this case) via the kraken crypto exchange.
Semi-automated or manual DCA
I am pretty much the nerd type when it comes to most things, but i am also lazy. Manual work tends to be forgotten, scripts tend to crash. That’s why i was looking for a convenient way to implement the following DCA process for myself.
1) Send money (SEPA) 🏦
2) Buy Bitcoin ₿
3) Send BTC to your own wallet 👛
4) Enjoy the summer 🏖
1) Send the money
It doesn’t look that way, but that simple process already poses a couple of challenges. Sending money on a regular basis is easy though. Simply setup a regular money transfer from your bank account to your exchange. Some exchanges even support automated buying when a certain deposit code is used or other means of configuration to liquidate to $BTC automatically.
2) Buy Bitcoin
Also a lot of options here. Depending on the interval, manual buying can be perfectly fine. It’s important to pick a trusted exchange.
3) Send BTC to your own wallet
You don’t want to keep your Bitcoin longer on an exchange than absolutely necessary. Create a dedicated, local wallet (Trezor, Coldcard or Ledger wallet recommended) and withdraw on a regular basis.
4) Forget about your Bitcoin
Yes, seriously. DCA’ing is about buying and leaving that stash alone. The worst you can do is probably stop buying if the price goes down. Track your DCA stash, but don’t trade it.
Automated DCA, mars style
Obviously there is also a nerdy (not necessarily better) way to do a mostly effortless DCA. I use this method in different forms for a while already and it gives me a piece of mind that crypto rarely allows for ;-)
The process is roughly the same, but way more efficient aka fully automated after the first iteration.
1a) Pick a non-custodial exchange that accepts SEPA payments.
Custodial exchange (like Bittrex, Coinbase or Binance) keep the funds for you. A non-custodial exchange on the other hand is an exchange where the exchange doesn’t keep any customer funds (or only for a very short time frame). You can buy directly to your own (local) wallet.
I looked into multiple options over the years and my favourites right now are
Both services are EU based. Let me know via the comments if you find a similar US or Asia based alternative. Since i like Bittr slightly more because of their top-notch customer service, i’ll provide this example based on Bittr.
Here are the essential facts:
- low fees (1,5%)
- daily/weekly/monthly SEPA transfers
- non-custodial
Pretty ideal for our DCA plan!
How the Bittr conversion works
To use the service, first “register” with an e-mail address. More about that later on. Open the “SAVE BITCOIN” link, enter your email address and click the “verify your email address button. After a couple of seconds, an email with a confirmation link will arrive in your inbox.
I set the word “register” in quotes, because your email addresses doesn’t have to be unique, can be used multiple times and even be a throwaway-mailbox.
After opening the “Confirm Email Address” link in the email, a phone number is required. This phone number receives a confirmation code at the beginning. Nothing else is sent to this number. I’m not sure if it’s even stored on their end.
The next step is already to enter your Bitcoin wallet address. Again, my recommendation is to create a dedicated, local wallet (Trezor, Coldcard or Ledger) wallet. Bittr supports bech32 (segwit) addresses!
After approval of the displayed disclaimer, a website displays the details you need for the bank transfer. Write down the details and the BTC address that you connected to this Bitcoin address. The payment reference is especially important.
That’s it! Every deposit you send to this bank account is now converted to $BTC and send to your local wallet.
This was STEP 1 and in theory we are already done here.
The extra mile
Since Bittr itself doesn’t allow to change a BTC address, privacy is a bit of a concern. Regular payments (of varying BTC value) that are sent to the same address on a regular basis could raise some attention one day.
My recommendation to work around that without turning this into a technical nightmare are as follows:
- Use Wasabi to generate your local wallet. Wasabi is an open-source, non-custodial, privacy focused Bitcoin wallet for desktop. It implements trustless coin shuffling for the funds that arrive. There are alternatives, but this is imho by far the easiest option.
- Generate multiple conversion jobs with different receiving addresses and varying time frames (weekly, bi-weekly, monthly, etc).
- Move the shuffled Bitcoin to a dedicated Hardware wallet every once in a while.
That’s about it! Thanks nopara73 for the awesome work on Wasabi!
Feedback from Bittr
Of course i wanted to know more about the service, sent the team an email and got some great feedback by Ruben Waterman. Ruben is the founder of Bittr and a passionate Bitcoin advocate since 2013.
These are only the essentials, i will follow up with a more detailed Q&A article in a dedicated article.
Question: Why is there no way to change my $BTC payout address?
Answer: The way Bittr was built is that customers would sign up once and save bitcoin in the style of a piggybank with a long-term view, and it was our goal to make this as easy as possible.
To us, this meant no complicated customer portal with trading features, a one-time sign up on the website and a one-time setup in your own banking environment. From a security perspective from us to the customer this meant, every deposit code is unique and locked once it has been used.
Any changes to the payment profile (i.e. change of IBAN, change of bitcoin address) could be socially engineered with our support team, whereas in Bittr’s current security model an attacker must gain access to the customer’s bank account and replace the deposit code in your recurring SEPA transfer, which seems highly unlikely. However, if we were to allow the bitcoin address to be changed, the customer could not notice at all that s/he is not receiving his bitcoin as nothing on his/her side has been changed and s/he would keep receiving the Bittr emails of new deposits being converted.
Question: I avoid address re-usage whenever possible. Do you have any plans to address these concerns?
Answer: We definitely understand the limitations of reusing a bitcoin address! On a privacy level, it is undesired to reuse an address as this exposes how much bitcoin you own, we therefore recommend not to use the address given to Bittr for any other service/person. On a security level, address re-use is undesired as perhaps one day one’s private key may be obtained from the signature. This however only applies if you have spent bitcoin from this address. Funny enough, this is quite similar to a real piggybank which you have to break before being able to spend from it ;).
Finally, we’re working on a way to obtain an x/zpub key from the customer instead of address, but this brings some risks as well as we don’t want to ever get somebody’s actual xpub key but rather from an account that is only uses for Bittr, as we really, really, really don’t want to have the ability to look into somebody’s bitcoin spending. We would then be able to deposit your piggybank satoshi’s always in a new address!
I think there is one exception, in which we can change your address (but it’s probably easier to set up a new deposit code ;)); if you’re an advanced bitcoin user and know how to sign messages from the address you signed up with, you could send me a signed message with your new address in it and I could update your address.
Hopefully this gave you some insight in the way Bittr is set up and how we would like to improve it. If you have other suggestions, please do let us know!
Conclusion
Saving Bitcoin with the DCA method is a no-brainer and everyone should do it. Consider saving yourself from the stress of trading and enjoy while the story of Bitcoin unfolds on a global scale.
Thanks for reading that far & have a lot of fun! BTC donations also welcome and never forget:
Have fun, this is crypto after all!
Disclaimer
“The above references an opinion and is for information purposes only. It is not intended to be investment advice. These ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Do your f*cking homework and don’t gamble.”
