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A no-fail trade? Bitcoin traders who dollar-cost average are profitable

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A no-fail trade? Bitcoin traders who dollar-cost average are profitable

Investors who have dollar-cost averaged into Bitcoin over time are profitable regardless of when they began implementing the strategy.

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The weighted average cost of purchased Bitcoin recently reached a level signifying that all investors who have consistently dollar-cost averaged into the leading cryptocurrency are now in the black, regardless of how long they have been holding.

This news comes despite the price of Bitcoin, as measured in U.S. dollars, still being down by over 50% from its all-time high of around $69,000.

And yet, many financial pundits in the space still cling to the notion of Bitcoin’s (BTC) entire existence and market cap of nearly $600 billion being based on a Ponzi scheme of some sort. Others continue to deny that saving in the hardest form of money ever known has, so far, been an excellent investment thesis — one that has outperformed all others.

Yes, there may be risks. And yes, volatility definitely comes with the territory. But looking at such factors in a vacuum does not make for adequate analysis of any investment. The alternative strategies available must be taken into consideration, along with other variables such as:

  • What is the current macro environment, and how might it change going forward? What impact might this have on different asset classes and their performance?
  • What risk/reward ratio does one strategy offer in comparison to others?
  • Can diversification lead to an optimized risk/return profile, or does YOLO’ing all-in provide better returns?

These are just a few potential questions that could be worth investigating when it comes to arguments against dollar-cost averaging (DCAing) into BTC for the long term.

Bitcoin outperforms traditional investments

Some investors, like those at Adamant Research, have been pointing out the reality of Bitcoin’s most favorable risk/reward ratio for many years:

“We assert that the long term risk reward ratio for Bitcoin is currently the most favorable of any liquid investment in the world. We expect for it to trade in a range of $3,000 to $6,500 after which we foresee the emergence of a new bull market.”

The group made similar statements during the bear markets of 2015 and 2011 as well.

How has a standard 60/40 portfolio fared over the last five years? What about gold? Real estate?

The following chart illustrates the relative performance of several currencies and asset classes against BTC quite well:

Needless to say, when it comes to comparing the performance of a DCA strategy in Bitcoin versus literally any other asset, there is little comparison to be made.

To diversify or not?

Traditional asset managers tend to abide by certain rules, one of them being the idea of rebalancing. When a particular asset outperforms, profits should be taken and distributed elsewhere, according to this line of thinking.

It can be considered a form of diversification “on the go,” so to speak. But whether discussing diversifying from the onset of constructing a portfolio or as time goes on, how would such a strategy compare to going all-in on what has so far been considered one of the riskiest, most speculative assets of all time?

The answer is simple: Doing so would be “selling the winner to buy the losers,” as investor Michael Saylor has said.

On a five-year basis, BTC/USD is up 376%. Compare this to about 55% for the S&P 500 or gold.

5-year chart of BTC, SPY and gold. Source: TradingView

Taking profits from Bitcoin at any point in time and putting them into other assets would have decimated a portfolio’s potential. Income from dividends doesn’t compensate, except for those working with multimillion-dollar portfolios. And even then, the potential income would be dwarfed by the capital gains of holding a large Bitcoin position.

While the concept of “risk” often implies volatility and potential downside, what about the risk associated with “playing it safe?” Should investors not be concerned about the potential of their portfolios to barely keep pace with the rate of inflation?

Related: CPI meets low BTC supply — 5 things to know in Bitcoin this week

Macro trends to consider

Proponents of Bitcoin and the DCA strategy have long since contended that BTC serves as the ultimate hedge against monetary inflation and overall financial market uncertainty.

Despite critics’ best efforts aimed at destroying this narrative, it has prevailed.

Look no further than the banking collapses of 2023 and Bitcoin’s resulting rally for proof. Furthermore, while the saying “so much for an inflation hedge” became popular in 2022 as BTC fell sharply from its all-time high, that idea strangely seemed to go by the wayside in 2023.

YTD chart of BTC/USD. Vertical line indicates the day of the collapse of Silvergate. Source: TradingView

When it comes to money printing, there is perhaps no crypto meme more famous than “money printer go brrr.”

A big reason that meme was so successful was the truth behind it: The growth of the M2 money supply has been highly correlated to the price of BTC/USD since its inception.

While money supply and velocity have been trending downward as of late, there’s little reason to believe the magic money printer has gone away. More likely, it simply lies dormant for a time.

Slow and steady wins the race

For many Bitcoin and crypto cynics, no amount of evidence will alter their convictions. Once a Ponzi scheme, always a Ponzi scheme, in their view. But hodlers have taken the orange pill and seen the truth while reaping the just rewards.

While Bitcoiners can invite others to the cause, no one can force a worldview on another. Even if that view has long since become self-evident.

BTC is up 87% year-to-date. Still, the price remains 44% beneath the all-time high of $69,000. The next halving is less than one year away, projected for May 2024.

Following this event, along with the prospect of increased institutional adoption in the immediate future, it’s widely anticipated that the Bitcoin price could reach six-figure territory and beyond during this cycle.