Imagine the current price of BTC is $20,000, and you're a high-earning individual looking to invest in this asset. If you make a lump sum investment, you would acquire one BTC at a cost of $20,000.
However, with DCA, you spread that $20,000 across five equal $4,000 purchases, resulting in costs of $20,000/BTC, $15,000/BTC, $5,000/BTC, $5,000/BTC, and $25,000/BTC. This approach yields an average cost basis of $18,000, and you'd have 2.3 Bitcoin. When Bitcoin's price eventually rises, your gains can be amplified because you lowered the average cost of acquiring your holdings. With DCA, you steadily accumulate more Bitcoin, even during market ups and downs.
To illustrate, your first purchase acquires 20% of 1 BTC at $20,000. The second purchase, at $15,000, gets you 26.66% of 1 BTC. Your third and fourth purchases, both at $5,000, result in a total of 80% of 1 BTC with each buy. Your final purchase, at $25,000, represents about 16% of 1 BTC. In total, you've accumulated around 2.3 BTC.
Plot twist:
After your first purchase bitcoin goes from 20 to 25k and your friend who bought a lump sum has 25% profit (5k), while you have 20% of that.
I'd call DCA is a good strategy when you have constant inflow of money, but no savings, or you don't want to touch those savings for whatever reason.
So, you earn 1k a month and want to spend $100 every time you get your paycheck on buying bitcoin. That's great!
If you have 20k in the bank just sitting there and earn 1k on top of it every month, don't DCA, just allocate 10% of your savings or whatever you feel comfortable with.