Bitcoin traders who embrace the strategy of dollar-cost averaging (DCA) have found consistent profitability, regardless of the timing of their entry into the market. This approach has proven to be a reliable method for investors over time.
The recent weighted average cost of Bitcoin purchases has reached a level where all investors who have consistently employed the dollar-cost averaging strategy are now in a profitable position, irrespective of the duration of their holdings.
It is noteworthy that this development has taken place despite the fact that the price of Bitcoin, when measured in U.S. dollars, remains down by over 50% from its all-time high of approximately $69,000.
Despite the significant evidence to the contrary, many financial experts still propagate the belief that Bitcoin’s value and its market capitalization of nearly $600 billion are based on some form of Ponzi scheme. Others refuse to acknowledge that storing wealth in the hardest form of currency ever known has been an exceptional investment thesis, one that has outperformed all other alternatives.
While it is true that risks exist, and volatility is inherent in this space, analyzing these factors in isolation does not provide adequate insight into the investment. It is crucial to consider alternative strategies and various variables, such as:
1. Evaluating the Current Macro Environment
Analyzing the prevailing macro environment and anticipating future changes is crucial. How might these changes impact different asset classes and their performance?
2. Comparing Risk/Reward Ratios
Comparing the risk/reward ratio of one strategy with others is essential. Does dollar-cost averaging offer a more favorable risk/reward profile than alternative approaches?
3. Optimizing Risk/Return Profile
Determining whether diversification can lead to an optimized risk/return profile or if going all-in on a single strategy provides better returns is a vital consideration.
These are just a few key questions that merit exploration when examining arguments against dollar-cost averaging into Bitcoin for the long term.
Bitcoin Outperforms Traditional Investments
Some investors, like those at Adamant Research, have consistently highlighted Bitcoin’s excellent risk/reward ratio over the years. They believe that Bitcoin currently offers the most favorable long-term risk/reward ratio compared to any other liquid investment in the world. Adamant Research expects the price to trade between $3,000 and $6,500 before the emergence of a new bull market. The group made similar predictions during the bear markets of 2015 and 2011.
To demonstrate Bitcoin’s superior performance, let’s consider the last five years and compare it with traditional investments such as a standard 60/40 portfolio, gold, and real estate. The following chart illustrates the relative performance of various currencies and asset classes against Bitcoin:
Undoubtedly, when assessing the performance of dollar-cost averaging in Bitcoin against any other asset, the difference is substantial.
To Diversify or Not?
Traditional asset managers often advocate for rebalancing as a means of diversification. When one asset performs exceptionally well, profits should be realized and allocated to other investments. However, how does this strategy compare to going all-in on what is perceived as one of the riskiest and most speculative assets of all time?
The answer is simple: Implementing such a strategy would entail “selling the winner to buy the losers,” as noted by investor Michael Saylor.
Over a five-year period, the BTC/USD pair has experienced an impressive 376% increase, far outperforming the S&P 500 (55%) and gold. By selling Bitcoin at any point in time and investing the proceeds elsewhere, one would have severely undermined the potential growth of their portfolio. Income from dividends alone would not compensate for such missed opportunities, even for those managing multimillion-dollar portfolios. Furthermore, the potential income generated would be overshadowed by the capital gains derived from holding a significant Bitcoin position.
While the term “risk” often implies volatility and potential downside, it is important to consider the risk associated with “playing it safe.” Should investors not be concerned about the possibility of their portfolios barely keeping pace with inflation?
Macro Trends to Consider
Advocates of Bitcoin and the dollar-cost averaging strategy have long maintained that BTC serves as the ultimate hedge against monetary inflation and overall financial market uncertainty. Despite relentless efforts by critics to undermine this narrative, it has stood the test of time.
One needs to look no further than the banking collapses of 2023 and the subsequent rally in Bitcoin to find evidence supporting this claim. Additionally, while the phrase “so much for an inflation hedge” gained popularity in 2022 when Bitcoin experienced a sharp decline from its all-time high, it seems to have lost traction in 2023.
When it comes to money printing, few crypto memes are as famous as “money printer go brrr.” This meme resonated because it holds an element of truth: the growth of the M2 money supply has exhibited a strong correlation with the BTC/USD price since Bitcoin’s inception.
Although money supply and velocity have recently trended downward, there is little reason to believe that the magic money printer has disappeared. More likely, it lies dormant for the time being.
Slow and Steady Wins the Race
For many skeptics of Bitcoin and cryptocurrencies, no amount of evidence will sway their convictions. In their view, once a Ponzi scheme, always a Ponzi scheme. However, those who have embraced Bitcoin’s potential have reaped the just rewards while enduring the skepticism.
As of now, BTC has experienced an 87% increase year-to-date. Nevertheless, the price remains 44% below its all-time high of $69,000. The next halving event is less than a year away, projected for May 2024.
Following this event, coupled with the anticipated increase in institutional adoption, it is widely expected that Bitcoin’s price could enter six-figure territory and beyond during this market cycle.
Source: CoinTelegraph
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