Stop Dollar-Cost Averaging Into Bitcoin
It might be doing you more harm than good
Do you buy the same amount of bitcoin on a fixed schedule regardless of price? For example, $20 every payday or $10 each week?
I get it. Everybody’s telling you to do it. Sometimes you buy high, sometimes you buy low, but you’re always stacking sats no matter what the price is doing.
When the price drops, you get a little extra bitcoin. When the price goes up, your existing bitcoin gets more valuable. Beats trying to time the market.
Which is true. It’s a great approach. Nobody goes broke dollar-cost averaging into bitcoin. You always come out ahead over time.
Over time.
Opportunity Lost
Bitcoin’s price went up 60% in 2021. If you dollar-cost averaged that whole time, odds are you ended the year down on your investment. The average daily cost of a bitcoin was $47,400 in 2021. The year-end price was 46,100.
(Today’s price is $42,000.)
You’re almost certainly doing better than you’d have done trading the market. No worries, no stress, no fuss.
Also, no gains.
Bitcoin went up 60% last year and your ROI was negative.
Even in good years, you’re struggling to get ahead.
At this point in the evolution of the market, dollar-cost averaging is not going to give you the returns you’re probably expecting.
Ten years ago, sure. Five years ago, probably.
Not now. One of my readers sent me this pattern of DCA returns since bitcoin’s inception:
Each passing year, the returns drop exponentially.
DCA into altcoins?
Maybe you think you’ll make up for it with altcoins?
The entire altcoin market went up 5x in 2021. It’s up +30x since the start of this bull market in December 2018. What about averaging into those?
Sure, over the long run, some altcoins will do way, way better than bitcoin. Will yours? What happens if you dollar-cost average into a dying altcoin? Many of the top 50 altcoins fit that description. Bitcoin will never fit that description.
Assuming you pick a winner, can you do that and avoid rug-pulls, pump-and-dumps, and ghost chains? Can you outpace the creative destruction of projects in a competitive and speculative market?
No altcoin has outperformed bitcoin from one market peak to the next, only at various intervals in between.
When you dollar-cost average into altcoins, you risk pouring money into projects that trail the overall market forever.
An alternative: buy low and save for the next opportunity
What can you do instead?
Buy when the market’s down. Once bitcoin’s price goes up a certain amount, stop buying and save for another opportunity.
In other words, concentrate your buying efforts on times like these, when the market seems destined to fall off a cliff (and might). Rarely buy any other time.
How can you tell when those buying opportunities start and end?
Follow my plan.
It’s three lines on a chart. Those lines change with bitcoin’s price (you don’t have to keep track of them). Just average into the market when bitcoin’s price is in the buying zone. Get some altcoins, too.
Then, whenever bitcoin’s price goes outside the buying zone, save your money for another opportunity. You may want to convert your cash into stablecoins and move them to a savings platform for 7-20% interest while you wait.
What to do with your money instead of DCA?
Enjoy your life. Maybe even use your crypto!
Let time and the natural growth of this market lift your investments higher.
Your portfolio will fluctuate wildly but the value of your investment will usually go up and when it does go down, won’t stay down for very long (probably a few months). Compared to sitting underwater HODLing for 1-2 years.
As of today, anybody following my plan since I first posted my plan in 2020 would be down 20% at most, possibly up as much as 650% or more. Most people fall somewhere in between, but up on their investment.
True, you’d sit on your hands for months at a time while the market seems to go “only up.” And you’d buy when it seems bitcoin’s price will keep going down forever.
You’d still have beaten dollar-cost averaging in almost every scenario I could find—with the same amount of money and effort (possibly less).
Give it a shot!
Mark Helfman publishes the Crypto is Easy newsletter. He is also the author of three books and a top bitcoin writer on Medium and Hacker Noon. Learn more about him in his bio.
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It’s a great plan for those that can save for good buying opportunities. Many DCA’ers save like this to insure that they are creating one term savings instead of spending. The question is are the DCAing into Bitcoin or something else waiting for opportunities. Stable coins might be the answer, so long as they don’t tether on you.
Crypto has taught me a lot. He taught a lot not only about the market, but also about life. I thought my own psychology was unshakable. But when I lost 60% on my first investment, I found that it was not so.
I have seen how not to stress during the falls, but on the contrary, to turn it into an opportunity. Some of my friends are very upset when the market turns red, but here's what I tell them. Hey, relax. Today is discount day. Bitcoin has entered a 10% discount do not miss this opportunity. And I'm evaluating it a little myself. I see that almost no crypto currency has been lower than the level I received in 12 months. This also relaxes me during the falls.
Thanks for the nice article.