Bitcoin DCA with Volatility Scaling

Concept

Standard dollar-cost averaging (DCA) buys a fixed dollar amount at regular intervals. This variation scales the allocation inversely to realized volatility — buying more when volatility is low (cheaper entries) and less when volatility spikes (avoiding tops).

Setup

• Frequency: Weekly purchases (same day each week)
• Base allocation: Fixed amount (e.g., $100 / week)
• Volatility metric: 30-day realized volatility of BTC/USD

Volatility Scaling Rules

• Low volatility (RV below 40th percentile): Multiply base by 1.5×
• Normal volatility (40th–70th percentile): Base allocation
• High volatility (above 70th percentile): Multiply base by 0.5×
• Extreme volatility (above 90th percentile): Skip purchase (hold as cash)

Rebalancing

Quarterly rebalance if strategy allocation drifts more than 10% from target. Excess cash from skipped purchases is deployed during low-volatility periods.

Risk Management

• Total crypto allocation should not exceed a pre-defined % of portfolio
• Use cold storage for long-term holdings
• Track cost basis and realized volatility percentile monthly

Notes

Historical backtests show volatility scaling reduces average entry price vs. fixed DCA over full market cycles. The strategy benefits from Bitcoin's cyclical volatility patterns — calm periods offer better entries, while manic periods trigger automatic reduction.