Over the years, different modes of investments have emerged for digital assets such as Bitcoin in a bid to get the most returns. Mostly, investors have tried to ‘buy the bottom and sell the top’. However, Bitcoin’s performance has proven that there is no way to accurately predict the bottom and catch the top of a bull market. In light of this, another mode of investing in BTC has emerged as the best way to invest in the asset for maximum returns.
The Superiority Of Dollar-Cost Averaging (DCA)
In a tweet shared by a pseudonymous X (formerly Twitter) account, the benefits of adopting a dollar-cost averaging (DCA) investing style when it comes to Bitcoin were shown. The post consisted of a chart that showed the performance of investors who use DCA versus those who just bought all their stash outright at a particular price.
For Bitcoin which can be highly volatile, DCAing over time, especially when the price of the digital asset drops has proven to be the best route. This works even if the investor had been buying the digital asset at all-time high prices.
As the post points out, some investors who started buying BTC back in November 2021 when the cryptocurrency was trading at its highest level so far are currently in profit. This is because as the price of BTC declined, they continued to buy at lower and lower prices.
This continuous implementation of the DCA strategy has brought their weighted average cost of one BTC to $26,386. Given that BTC is currently trading above $26,400 at the time of writing, these investors are back in the green despite buying the top initially.
BTC juggling above $26,400 | Source: BTCUSD on Tradingview.com
Winning In Bitcoin With DCA
One example of where using the DCA strategy has shone through is that of MicroStrategy, the public company with the largest BTC holdings in the world. The company initially started buying BTC back in 2020 when the bull market was starting, buying 21,454 BTC in one go. The company continued buying BTC all through the bull market, constantly increasing its average cost.
When the market crashed in 2022, MicroStrategy’s BTC holdings were plunged into losses. However, MicroStrategy’s continuous dollar-cost averaging through the bear market helped to reduce its average cost basis, bringing it to near breakeven at the time of this writing.
Given Bitcoin’s tendency to rise and fall rapidly even during bull markets, a DCA strategy would be the most effective for investors. It not only helps to lower average cost, but it can also help to reduce the amount of risk an investor takes at one point in time by investing a little at a time instead of one lump sum.