One of the biggest concerns for prospective crypto investors is whether it's too risky to invest in Bitcoin (BTC 0.70%) and other digital currencies. It's a fair question to ask given how volatile Bitcoin has been over the years. While some investors have gotten rich from investing in crypto, many others have lost big.
But rather than making a big one-time investment in crypto, you may want to consider spreading out your investment over time, through a strategy known as dollar-cost averaging. Below, I'll show how an investment in Bitcoin would have fared if you invested the same amount at the start of each month last year, compared with how you would have done if you just made a single purchase.
CRYPTO: BTC
Key Data Points
What your average cost would have been in Bitcoin with dollar-cost averaging
An advantage of setting a plan to use dollar-cost averaging is that you take out the emotional part of the decision-making process in investing. And that's the part that can sometimes get you into trouble, by going on a gut feeling or making an impulse decision. With dollar-cost averaging, you can just make a plan to buy at the start, end, or middle of every month, regardless of what the price is.
The table below shows you what the price of Bitcoin was at the end of each day of the first of the month, and what a $12,000 investment spread into 12 equal investments would have looked like by the end of the year.
| Date | Price | Investment | BTC | Cumulative Investment | Cumulative BTC | Running Average |
| Jan. 1, 2023 | $16,605.10 | $1,000 | 0.06 | $1,000.00 | 0.06 | $16,605.10 |
| Feb. 1, 2023 | $23,705.10 | $1,000 | 0.04 | $2,000.00 | 0.10 | $19,529.82 |
| March 1, 2023 | $23,631.50 | $1,000 | 0.04 | $3,000.00 | 0.14 | $20,729.13 |
| April 1, 2023 | $28,475.00 | $1,000 | 0.04 | $4,000.00 | 0.18 | $22,241.70 |
| May 1, 2023 | $28,074.50 | $1,000 | 0.04 | $5,000.00 | 0.22 | $23,205.96 |
| June 1, 2023 | $26,814.30 | $1,000 | 0.04 | $6,000.00 | 0.25 | $23,738.36 |
| July 1, 2023 | $30,587.20 | $1,000 | 0.03 | $7,000.00 | 0.29 | $24,522.78 |
| Aug. 1, 2023 | $29,695.90 | $1,000 | 0.03 | $8,000.00 | 0.32 | $25,068.66 |
| Sept. 1, 2023 | $25,811.00 | $1,000 | 0.04 | $9,000.00 | 0.36 | $25,149.03 |
| Oct. 1, 2023 | $27,979.60 | $1,000 | 0.04 | $10,000.00 | 0.39 | $25,406.05 |
| Nov. 1, 2023 | $35,440.10 | $1,000 | 0.03 | $11,000.00 | 0.42 | $26,077.25 |
| Dec. 1, 2023 | $38,703.50 | $1,000 | 0.03 | $12,000.00 | 0.45 | $26,805.99 |
End-of-day prices based on data from Google Finance.
Why investors may have been better off with dollar-cost averaging
Today, Bitcoin is trading at around $39,000, and you would be sitting on an impressive return of 45% based on your average cost of $26,805.99 per Bitcoin, according to the table above. While you could have earned an even better return if you bought early in the year with one lump-sum purchase, the running average by the end of the year was lower than what you could have bought Bitcoin for at the start of most months.
The benefit of dollar-cost averaging is that although your average may rise in value, that's a good thing, since it means the price of the asset you are buying is also increasing, and thus your gains are likewise rising along the way. And if the asset declines in value, then you are averaging down. As long as you're willing to invest for the long term, it's a strategy that could yield some strong returns.
Should you use dollar-cost averaging to buy Bitcoin and other cryptocurrencies?
If you're looking to invest in Bitcoin or crypto in general, dollar-cost averaging may be the safest way to slowly gain exposure to it. By not making a huge lump-sum purchase, you don't have to worry about the price at that specific moment in time. If the price goes up, you'll profit from it, and if it goes down, you'll average down. But as long as you're confident in crypto for the long haul, this can be an effective way to spread your risk over a longer period. The key is to know how much you want to invest, and to plan your purchases accordingly.
Investing in crypto isn't for everyone because there is a lot of volatility and the risks are high. But with dollar-cost averaging, you can lower that risk by having a plan in place.
