Dollar Cost Averaging or Lump-sum: Which Bitcoin strategy works best regardless of price?

Bitcoin (BTC), which reached a record high of $69,000 in November 2021, has fallen by more than 55% over the past six months.

Investors are now in dilemma about whether to buy Bitcoin when it is cheaper (around $30,000) or wait for another market sale.

The more you look at prior $BTC price history the more one can think it’s not the bottom After 190 days from the all-time high, Bitcoin still had another 150 to 200 days until it hit bottom last couple of cycles (red box) If time is any indicator, could be another 6 to 8 months
— Rager (@Rager) May 20, 2022

This is due to lower interest rates despite the Federal Reserve’s recent 0.5% rate increase. The cash holdings of global fund managers have risen 6.1% to $83 Billion, which is the highest level since the September 11 attacks. According to the most recent Bank of America data, this suggests that hedge fund managers are more risk-averse than the largest pension, insurance, asset and hedge fund managers.

Many crypto analysts, including Carl B. Menger see more buying opportunities in Bitcoin markets as the price of Bitcoin reaches a bottom.

Instead of suggesting lump-sum investments (LSI), which would see investors pay a large sum to enter a particular market, there is a safer alternative, the “dollar cost average,” or DCA.

The Bitcoin DCA strategy beats 99.9% of asset managers

DCA is a strategy where investors split their cash into 12 equal parts and then buy Bitcoin with each portion every month. Investors buy more Bitcoin when it is cheaper and less when it is higher.

This strategy has delivered amazing results so far.

According to CryptoHead’s DCA calculator, investors have a cumulative return $163 for every dollar they invest in Bitcoin after December 2017. That is, an investment of just one dollar per month into Bitcoin has yielded a profit of about $20,000 each month. This is a profit of around 200% from consistent investments.

Calculator for Bitcoin DCA. Source: CryptoHead

BTC DCA is also based on the belief that BTC’s long term trend will always be positive. Menger asserts that investing in Bitcoin for a fixed dollar amount can help investors beat 99.99% of investment managers and firms around the world.

This chart speaks everything #btc DCA is the smartest and the most effective way of beating the market #bearmarket
— ahmad (@albazzi02) May 13, 2022

Cracks in the DCA Strategy

However, historical returns in traditional markets do not support DCA being the best investment strategy. The LSI strategy is better.

A Vanguard study of 60/40 portfolios, which covered every 12-month period from 1926 to 2015, found that all-at once investments outperformed DCA by two-thirds. The average annual return was 2.4%.

Related: Bitcoin ends the week ‘on edge’ as S&P 500 enters bear market

This raises the possibility of Bitcoin showing similar results to its DCA or LSI strategies, which has a positive daily correlation with the benchmark S&P 500 Index index, 0.96 in May.

Therefore, it is possible to make lower profits by investing in Bitcoin regularly with a fixed amount of cash than you would with an all-in approach.

Daily chart of BTC/USD price. Source: TradingView

What about combining them?

Larry Swedroe is the chief research officer at Buckingham Wealth Partner. He believes that investors should have a “glass half full” view of investing, which means a mix LSI/DCA.

The analyst posted on SeekingAlpha that he advised to invest one-third of the investment right away and then invest the rest one-third over the next two or three months.

“Invest one-quarter of your portfolio today, and spread the rest equally over the next three years.” Invest one-sixth of your monthly income for six months, or every other month. You should do your research before making any investment or trading decision.

2021's Most Anticipated Growth & Wealth-Building Opportunity

Join Thousands of Early Adopters Just Like You Who Want to Grow Capital and Truly Understand Cryptocurrency Together

Eileen Wilson

Eileen Wilson –Technology and Energy My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.

Close Bitnami banner