Which Bitcoin Strategy Works Best Regardless of Price?

Which Bitcoin Strategy Works Best Regardless of Price?

Bitcoin (BTC) is down by more than 55% six months after hitting its all-time high of $69,000 in November 2021.

The massive drop has left investors in a bind over whether they should buy BTC when it is cheapest, around $30,000, or wait for another market sell-off.

This is mainly because interest rates are lower despite the Federal Reserve’s recent 0.5% rate hike. Meanwhile, cash holdings among global fund managers have risen 6.1% to $83 billion, the highest level since the 9/11 attacks. This suggests risk aversion among the largest pension, insurance, asset and hedge fund managers, the latest data from Bank of America shows.

Many cryptocurrency analysts, including Carl B Menger, see more opportunities buying in the Bitcoin market as its price looks for a bottom.

But instead of suggesting a lump sum investment (LSI), in which investors throw up a large sum to enter a market, there is an apparently safer alternative for the lay investor, called “Dollar Cost Averaging” or DCA.

DCA Bitcoin strategy can beat 99.9% of all asset managers

The DCA strategy is where investors divide their cash holdings into twelve equal parts and buy Bitcoin with each part each month. In other words, investors buy more BTC when its prices go down and less of the same asset when its prices go up.

The strategy has so far provided incredible results.

For example, a dollar invested in Bitcoin every month after it peaked in December 2017 (close to $20,000) has given investors a cumulative return of $163, according to CryptoHead’s DCA calculator. That means a profit of around 200% on constant investments.

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Bitcoin DCA calculator. Source: CryptoHead

The DCA strategy on Bitcoin also stems from the view that the long-term trend of BTC would always remain tilted to the upside. Menger claims that regularly buying Bitcoin for a certain dollar amount could see investors “beat 99.99% of all investment managers and companies on planet Earth.”

Flaws in the DCA strategy

However, historical returns in traditional markets do not support DCA as the best investment strategy. Instead, the LSI strategy proves to be better.

For example, a study of 60/40 portfolios by Vanguard, which looked at every 12-month time frame from 1926 to 2015, showed that combined investments exceeded DCA two-thirds of the time, averaging 2.4% in a year. basic calendar.

This somewhat raises the possibility that Bitcoin, whose daily positive correlation with the benchmark S&P 500 index increased to 0.96 in May, will show similar results between its DCA and LSI strategies going forward.

Therefore, Regularly investing in Bitcoin with a fixed cash amount may not always yield better returns than the all-in method.

Which Bitcoin Strategy Works Best Regardless of Price?
BTC/USD daily chart. Source: Tradingview

But what about combining both?

Larry Swedroe, director of research at Buckingham Wealth Partner, believes that investors they should invest with a “glass is half full” perspective, which means a combination of LSI and DCA.

“Invest one-third of the investment right away and invest the rest one-third at a time over the next two months or two quarters,” wrote the analyst at SeekingAlpha, adding:

“Invest a quarter today and invest the rest spread evenly over the next three quarters. Invest a sixth every month for six months or every two months.”

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.

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