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“Dollar-cost averaging” is a strategy used by investors. By buying a fixed amount of investment at regular intervals, a long term holder will reduce the cost of making an investment (the transaction fee). That way, the investor buys more at a lower price and less at a higher price. Let’s study how dollar cost averaging bitcoin works from data analysis view.
While investing in a single stock is fine, dollar-cost averaging is a much smarter way to build a healthy portfolio. Determining the right time to buy shares can be tricky, but a popular way to make a slice of the pie is to buy a set dollar amount on a regular basis. For example, if you plan to buy $100 worth of stock per month, divide the number of shares you want to buy by $100 to find out how many shares you will need to buy at once.
For those who have been following my blog for a while, you know that I’ve been a huge fan of the dollar cost averaging strategy. The idea is simple: over a long time period, buy a fixed amount of an investment at regular intervals. This way, you buy more of an investment at its low points and fewer when it’s at its high points.
Since Bitcoin (BTC) fell from 19th April, the market saw some swings in the cryptocurrency market, and such shaky markets can test the patience and resilience of even the most dedicated traders and analysts, especially when the incessant call for a bottom leads to deeper lows.
Analysis of Dollar Cost Averaging Bitcoin.
Periods of low trading volume and choppy price movements may be ideal conditions for whale-sized traders, but the average investor doesn’t stand a chance, especially with the multi-million dollar funds now coming into play.
The data shows that instead of trading overnight and trying to catch the bottom of the market, Dollar Cost Averaging (DCA) is the best method for retail investors looking for long-term returns in both traditional and crypto-currency markets.
In 2020, Coin Metrics found that investors who spent an average of dollars on BTC from its peak in December 2017 are still benefiting three years later.
Coin Metrics reported on Twitter:
Although #Bitcoin is still trading 30% below its ATH, an average dollar price since the market peak in December 2017 would have returned 61.8%, or 20.1% year-to-date. Similarly, for #Ethereum (which is still down 71% from its peak), the average dollar cost would yield 87.6% since January 2018, or 27.9% per year. The chart illustrates the positive performance of the BTC using the average dollar cost. Source: Metric parts
Although the chart is a bit dated, you can see that the consistency of the investments over the long term has led to an overall increase in the value of the portfolio.
With BTC currently down more than 47% from its all-time high of $64,863 and the cryptocurrency market continuing to give mixed signals, this could be a good time to adopt a DCA strategy.
Investments are not limited to the purchase of securities
Let’s look at the results of the average dollar value of various cryptocurrencies from 2017-2018 to the end of June 2021.
The starting point for each analysis is the day of the all-time high of the 2017-2018 bull market in token value, and a weekly investment of $10 will be applied from that point.
According to CoinMarketCap, bitcoin’s value in this cycle reached a new high on the 15th. December 2017 reached a peak when BTC traded at $19,497.
If you use CostAVG.com’s DCA rating tool, you can see that if from Dec. 15, 2017 to Dec. 30, 2017, the DCA rating will be the same. 2017. By June 2021, $10 per day would be invested in BTC, the total investment of $1,850 would increase by 306% to a value of $7,519.
Average dollar price of bitcoin portfolio over a given period. Source: CostAVG.com.
If you ask most fund managers or traders who live by traditional investing, a 306% increase in value over four years is an impressive return.
Inflated return on Ether profit
The price of Ether (ETH) exploded from late 2020 to early 2021 as the growth of decentralized finance (DeFi) and non-functional tokens (NFT) exponentially increased the use of the Ethereum smart contract blockchain and drove demand for ETH.
Increased demand contributed to a rally that pushed the price of Ether higher on the 12th. May 2021 at $4,363, but since then the price has fallen by almost 50% and is trading below $2,200 at the time of writing.
During the 2017 bull market, the price of ETH peaked on the 12th. January 2018 an all-time high of $1,396. Investors who used the DCA strategy and invested $10 per month since the peak would have spent a total of $1,810 and received a portfolio value of $15,507 at the current Ether price. This corresponds to an increase of 757%.
Average Ether portfolio in dollars over a given period. Source: CostAVG.com.
Ether’s percentage gain is more than twice that of Bitcoin, giving credibility to those who say Ether has been a better investment in recent years.
Small-cap altcoins also benefit from DCA strategy
To demonstrate the benefit of applying the DCA strategy to small-cap altcoins, let’s do a quick analysis of Theta, which was one of the breakout stars in 2021.
THETA began parabolic price increases in December 2020, and by 1. In January 2021, the price will increase from $0.80 to $2.40. The 15th. It then reached a record high of $14.28 in April.
According to Blockchaincenter.net, which offers data on the average dollar value of various tokens at a $10 per day investment, an investor who would have started investing in THETA the 1. January 2018, with a total investment of $12,480 is now worth over $638,000 – a 5000% increase.
THETA portfolio of average dollar costs over time. Source: Blockchaincenter.net
While it’s clear that not all altcoins have performed as well as THETA during this period, it’s a good example of how a stable investment in a small-cap project can reward patient investors.
The advantage of the dollar-cost averaging system is that it takes emotions out of the investment process and allows the investor to focus on other things, whereas day traders sit behind screens for hours and often lose more than they gain.
It also eliminates the need to chase market highs and lows and provides investors with weighted and consistent access to a variety of assets.
No method is perfect, and not all crypto projects will offer significant returns or even survive the next bull run, but Dollar Cost Averaging is an approach that delivers consistent results for both amateur and expert investors.
Do you want more information about trading and investing in the cryptocurrency markets?
Quotes in this newsletter, taken from previously published sources, have been slightly altered.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of cryptotradingsite.com. Every investment and every transaction involves risk. So you need to do your own research before making a decision. For those who believe in the stock market, that is—those who are convinced that the future is bright and they can make a lot of money in the next few years—the way to do it is to buy a bucket of stock. That way, if the market is on fire, you’ll make money, and if it goes down, you’ll get back to where you started. It’s a great strategy that has worked for decades, but it’s not the only way to make money.
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