Dollar Cost Averaging (DCA) is touted as one of the best investing approaches in crypto amongst Crypto Twitter. And there’s a good reason for it. In some instances, DCA has shown better returns in investing, while market timing is one of the most challenging feats.

      While we appreciate the benefits of DCA investing, we believe a superior approach exists, which we call Dynamic DCA. This method adjusts the DCA amount based on specific triggers and can be further enhanced when combined with staking rewards.

      We developed 60 distinct strategies to validate our hypothesis and analyzed the data to determine the optimal investment approach for Ethereum. These strategies encompass five key categories, including variations of Fixed and Dynamic DCAs, staking vs. no staking, selling vs. no selling, lump sum investments, and diverse entry prices and durations.

      Whether you’re a novice or veteran of DCA’ing, this insightful exploration is essential reading. Our results highlight specific strategies lead to higher returns, but we believe individual investors may deploy different strategies based on other factors beyond returns. As a result, we also aim to answer which strategy is best for you.

      The answers lie within our comprehensive model and analysis, which may challenge and transform your preconceived notions. Some findings confirm expectations, while others defy them. Let’s dig in!

      Establishing DCA Variables and Data for our Model

      When you DCA, most likely, you carefully weigh several critical variables:

      1. Time: When did you begin investing in ETH, and when did you cease?
      2. Hold/Sell: Do you retain all purchased ETH or sell a portion or the entirety?
      3. Sizing: How do you adjust your purchase or sale size based on price volatility?
      4. Staking Rewards: Do you factor in staking rewards, and how do they influence your return on investment?

      To unravel these complexities, we built a model using Ethereum’s daily price data from March 30, 2021, to March 26, 2023. We then calculated the daily price change percentage, determined the average price change for Ethereum over the past two years, and computed the standard deviation of daily percentage price changes. This process enables us to assess the volatility of daily price fluctuations and establish relevant thresholds to test our strategies.

      Breaking Down The Strategies

      Employing our model, we devised five distinct strategies, each evaluated both with and without the inclusion of staking rewards and six different price entries and duration, culminating in a total of 60 strategies:

      1. Fixed DCA & Capped Total Amount: Embrace consistency with a daily DCA of $8.90, abstain from selling, and restrict the total amount to $6,464.65.
      2. Dynamic DCA, No Selling, & Capped Total Amount: Adapt to the whims of the market by adjusting the DCA based on volatility, either $11.86 or $500, while refraining from selling and capping the total amount at $6,464.65.
      3. Dynamic DCA, No Selling, & Uncapped Total Amount: Become one with the ebb and flow of the market, adjusting DCA based on volatility ($11.86 or $500), never selling, and allowing for an unlimited total amount.
      4. Dynamic DCA with Selling & Capped Total Amount: Dance with the market’s fluctuations, adjusting the DCA ($11.86 or $500) based on volatility, selling 25% of your position as needed, and limiting your total investment to $6,464.65.
      5. Capped Lump Sum: Boldly commit to a single, calculated move by investing a lump sum of $6,464.65, and opt not to sell.

      These strategies cater to various investment decisions, allowing for a comprehensive comparison.

      Next, we consider duration and price entry. Since the data used is from 3/30/2021 to 3/26/2023, all duration is chosen from within this range. The duration of the strategies depends on price entry.

      Defining Model Inputs

      First, let’s discuss how we decide when a strategy increases the DCA value or sells its position. Dynamic strategies increase DCA when price changes within a day 1.5x more than the expected volatility (standard deviation). When the price declines more than 1.5x DCA, value increases; when the price increases more than 1.5x expected volatility, one strategy sells a portion of its holdings.

      Four primary inputs for our model include the daily DCA value, the increased DCA value when prices decline beyond our trigger point, the selling percentage for strategies that include selling, and the total amount to be invested over the entire duration. We tried to use realistic values for the average investor.

      Dynamic DCA Values When Outsized Volatility Occurs

      Two inputs we included that are hardcoded in our model include the sales trigger of 25% and the $500-dollar DCA input when the price declines 1.5x more than the expected volatility. We chose 25% as the sales amount since we assume a DCA strategy implies the investor is long-term bullish on an asset and would not want to remove too significant of exposure. In addition, it’s beneficial for long-term staking rewards not to sell too aggressively. Secondly, we chose a 500-dollar DCA when the price declines 1.5x beyond expected volatility as a meaningful sum that a passive investor would consider. 

      Daily DCA Value for Dynamic DCA Strategies

      Next, we determined the Daily DCA value. We began by anchoring our model to the Dynamic DCA with Selling, Capped Amount strategy. We then employed a variable optimization script that tested 1,000 different DCA values to maximize returns for this strategy. To simulate a typical daily DCA, we set the value between $10 and $15. Utilizing the script below, we identified the DCA value with the highest return, $11.86, for the Dynamic DCA strategies.

      Total Principal Investment Amount

      Next, we determined the total investment amount over the entire duration. The exact total amount was used to ensure comparability among all strategies. We identified $6,464.65 as the minimum required principal to fulfill the strategy with the earliest, most significant invested cash balance, Dynamic DCA with Selling and Capped Total Amount, across the longest duration period, 3/30/2021 to 3/26/2021. Depending on the duration period, the total amount changes.

      With the inputs mentioned earlier (Dynamic DCA = $11.86, outsized price decline DCA of $500, and a 25% sale during outsized price increases), the largest cash investment value over the 726 days of data amounted to $6,464.65. To maintain consistency, we ensured all other strategies had the same amount of capital. We based our model on the strategy that included selling since it involved the most complex calculations and a sales trigger: a percentage rather than a constant number. Incorporating selling and Dynamic DCA, we could only determine the total capital required for all strategies by running the model for this strategy.

      DCA Value for Fixed DCA Strategies

      Lastly, the DCA value for the Fixed DCA strategy is obtained by dividing $6,464.65 by the number of days within the chosen data range. In this example, using the complete data range from 3/30/2021 to 3/26/2023 (726 days), the fixed DCA is calculated as $6,464.65/726, which equals $8.90.

      Using the same methodology, the fixed DCA value and total amount vary depending on the selected date range.

      Now that we understand our model works let’s explore the results.

      The ultimate question: Which strategy reigns supreme?

      Eager to know the best strategy, you may be met with the familiar response: it depends. Examining the data, Dynamic DCA with Selling & Capped Total Amount strategy consistently outperforms others. However, the outcomes are contingent on start and end dates, and with crypto’s notorious volatility, prices can shift dramatically quickly. Selling and being on the sidelines can be costly. Additionally, selling slightly increases fees, although not considered in this model. Overall, the Capped Lump Sum strategy offers the highest returns and the largest losses and requires impeccable timing.

      Here is a concise comparison of all 60 strategies:

      Let’s look at how each strategy performs and how performance changes due to staking, duration, and starting DCA price.

      Capped Lump Sum

      The capped lump sum strategy provides the largest return discrepancy, with returns ranging from 84% to -64% within the period. The entire amount is invested at once as a lump sum investment approach. 

      Consequently, investing when prices are relatively lower can yield significant advantages in returns. Additionally, lump sum investments typically generate the most staking rewards of all strategies, especially when invested earlier, given rewards are calculated on the entire amount at once and accrue as time passes. However, this strategy is also costly, as investing at the higher end of the ETH price range could lead to significant losses. This strategy is best for those looking to take advantage of staking rewards, holding long-term, and those who have a good sense of when prices are on the lower end. Remember that timing is one of the most challenging things for an investor.

      Dynamic DCA with Selling & Capped Total Amount

      This strategy offers the second-highest returns of 37%, with a notably lower downside of -14% compared to the Capped Lump Sum. It could be considered the optimal approach for maximizing returns while relatively minimizing the downside. Interestingly, this strategy only yields negative returns if investments begin at peak ETH prices; otherwise, it consistently generates positive results. Notably, a lower price entry or earlier investment period does not guarantee better returns with this method. Moreover, this strategy demands the highest level of engagement, as it requires DCA adjustments when volatility pushes the price up or down 1.5x expected volatility. Other dynamic strategies only consider price declines. Not to mention there are selling fees to consider. This strategy performs even better with staking; sometimes, it makes a big difference depending on price entry. Most interestingly, including selling in the strategy protects from the downside more than maximizing returns.

      Dynamic DCA, No Selling, Capped

      This strategy could be considered the least effective across all strategies, price entry points, and durations. Adjusting the DCA without selling leads to a quick allocation of the total amount. Since the total amount is capped, further investments are impossible once the cap is reached. This approach may benefit those aiming to accumulate more staking rewards as the DCA process completes earlier. The strategy’s effectiveness significantly improves with duration and staking rewards. For instance, when examining the ‘Earliest’ price entry, staking returns are substantially better than the strategy without staking. However, if the goal is to maximize staking rewards and benefit from duration, the Capped Lump Sum strategy is significantly superior and offers better returns with and without staking. If the total amount to be invested is uncapped, meaning you don’t have a set total amount that, once reached, would stop you from DCA’ing, then the same strategy but with an Uncapped total amount would be better.

      Dynamic DCA, No Selling, Uncapped

      This approach yields a 29% best-case return and a -6% worst-case return. Similar to the Dynamic DCA with Selling & Capped total Amount strategy, it increases DCA when prices decline more than 1.5x standard deviation but does not involve selling. This strategy is particularly advantageous for increasing staking rewards since tokens aren’t sold, and the total amount is also uncapped, allowing continued investment regardless of reaching a total limit. The effectiveness of this strategy is highly dependent on timing. This is the ideal strategy for those looking to DCA and stake over the long term, who aren’t interested in selling, and who want to avoid risks associated with lump sum investments.

      Fixed DCA & Capped Total Amount

      Likely, the most common DCA strategy is one where investors have a set Fixed DCA and the total amount they’re willing to invest in ETH over time. This strategy, in the select period, at best, returns 25%, and at worst -13%. It’s a great set-it-and-forget-it strategy. This strategy performs almost as well as Dynamic DCA, No Selling, Uncapped. However, it has worse returns on the downside. Adjusting your DCA when prices are lower to buy mitigates the downside rather than maximizing the upside. And, of course, staking further enhances returns for this strategy.

      Final Thoughts

      After analyzing our core five strategies, then incorporating staking, and finally incorporating duration and price entry, we’ve assessed 60 strategies. As a result, we can provide perspective on each part of the decision process when investing:

      1. Time: Depending on when you start your DCA journey makes a significant difference. All strategies have drastic return differences if you happen to start DCA’ing near the bottom or top of ETH prices. Across most strategies, however, those who invested earlier did outperform all other entry points outside of those beginning to invest at near-bottom prices.
      2. Hold/Sell: Simply looking at returns, the one strategy incorporating selling provided the best returns adjusted for risk across all entry points but not the highest return. Although the upside is slightly better (generally about 10% better than other Dynamic DCA strategies), it shines best when considering the price entry points that lead to losses for most strategies. Selling strategies seem to do well against protecting the downside. Investing in a lump sum fashion can provide the highest return if you can invest near the bottom and then hold to accumulate staking rewards. However, a lump sum strategy leads to the worst returns if the investment is mistimed when prices are on the higher end.
      3. Sizing: Adjusting DCA dynamically generally yields better returns. Fixed DCA outperforms Dynamic DCA only when Dynamic DCA strategies incorporate a capped total amount and no selling strategy. This is likely because you go through the total amount, run out of liquidity, and miss out on future buy opportunities while not capitalizing on price increases through sales.
      4. Staking Rewards: Across all strategies, staking unanimously leads to better returns. This is especially true when prices decline, providing investors meaningful downside protection. When returns are positive, staking strategies still outperform. According to the results, staking is a substantial returns booster and downside protection.

      Hopefully, this analysis gives you a thorough perspective and guidance in your DCA and staking decision process. Remember that the data used to derive this analysis is two years of past data. It’s a helpful guide, but it does not indicate the future performance of Ethereum and crypto in general. The industry is still nascent, and basing investment decisions solely on past data is especially dangerous.

      If you have any further questions, let us know in the comments or reach out on Twitter

      This is not financial advice.

      About The Author

      Elton Shehdula

      is the Head of Research-Led Content at Staking Rewards. He brings a wealth of experience in early-stage startups, research, and company sourcing. Prior to joining Staking Rewards, Elton led a team consulting Global2000 clients on early-stage investments and tech endeavors. In addition, as the third team member, he grew a venture capital fund-of-fund to $300 million in AuM and conducted investment diligence on leading early-stage VCs and companies. In recent years, Elton has focused his attention on the cryptocurrency space, conducting extensive research personally and for corporates.