Seasoned Bitcoin (BTCInvestors know that the crypto market is trading in cycles, and now that the BTC price has hit the previous record level, a full bull cycle is underway.
As this new cycle gets underway, the mainstream media is all buzzing with articles about Bitcoin and everyone from world-renowned investment gurus to Uber drivers seems to have an opinion on the best tips, tricks, and moon coins you should buy to generate immediate wealth.
As with the latest bull market, it will also be littered with posts from crypto-Twitter celebrities who have somehow managed to turn $ 100 into $ 10,000 or more, but this isn’t necessarily the experience of the majority of the cryptocurrency investors who are often exposed to the whims of cryptocurrency whales and the wild price swings seen on exchanges offering crypto derivatives.
For the average investor with limited time and a full-time job, day trading is not an option. Add to this the fact that data shows that the majority of high-frequency traders do not generate substantial profits.
While some have the time to research legitimate crypto projects and perform fundamental and technical analysis, this can quickly become a full-time job in itself.
Fortunately, there is a much easier and more effective way to trade Bitcoin during bull and bear cycles and this tactic is called dollar cost averaging.
Data shows that the dollar cost average is the best for accumulating Bitcoin
For the average investor looking for a more simplified approach, multiple studies have shown that averaging Bitcoin purchases in dollars is a return on investment which most funds would brag about.
As can be seen in the chart above, an investor who bought $ 1,000 in 2017 has significantly increased their portfolio value and outperformed all traditional markets over the three-year period.
This buy-and-hold strategy is a proven method of investing in Bitcoin, but not every investor likes to put a good portion of the money into an asset as volatile as Bitcoin.
For investors who are more risk averse, cashing at the cost of the dollar is an even ‘safer’ method of investing in asset risk.
Dollar-cost averaging (DCA) is a well-known investment technique that major investors love Warren Buffet touted as a way to invest in volatile markets. While the “Oracle of Omaha” specifically referred to the purchase of large index funds, the same truth carries over to crypto.
Instead of taking a lump sum and investing it all at once, an investor would instead split the larger amount into smaller amounts and then periodically invest those smaller amounts over time. The idea is that while it can be difficult to time a market up or down, making regular purchases will get you the best average entry price.
For example, use the Bitcoin DCA toolan investor can see that $ 100 invested in BTC weekly since its all-time high in December 2017 would currently be in a portfolio worth $ 40,867 at the current Bitcoin value. As shown in the chart below, a total investment of $ 15,700 invested over the course of $ 100 per week resulted in a 160% increase in value over three years.
DCA is used by large funds to take new positions
Even large institutions are using this strategy to increase their exposure to Bitcoin and Ether.
Recently, Microstrategy caused a furore in the crypto and traditional investment world when CEO Michael Saylor announced that the company has purchased more than $ 425 million worth of Bitcoin and BTC are primary reserve currency.
When discussing the acquisition on Twitter Saylor said:
“To acquire 16,796 BTC (announced 9/14/20), we traded continuously for 74 hours, executing 88,617 trades of ~ 0.19 BTC every 3 seconds. ~ $ 39,414 in BTC per minute, but at any time we were willing to buy $ 30-50 million in seconds if we were lucky with a 1-2% downward spike. “
While this is clearly an institutional example of DCA, as Saylor described, smaller trades were spread over time to get the best average price for the given time frame without causing a noticeable spike in the market.
Slow and steady has been proven to win the race
Day traders, investment experts and crypto Twitter celebrities often post dazzling profit-and-loss screenshots of their trades that would make any investor want FOMO in Bitcoin, but this has been proven to be not the most effective method.
Data reflects grim stats for day traders as 80% to 95% of day traders actually lose money. This figure isn’t just for that cryptocurrency markets, as well as with all trading markets.
So the next time you see that flashy ad or email newsletter that guarantees massive profits and sure crypto picks that will no doubt be the next lunar coin for the low price of $ 1,000 a month, remember that another dollar cost average method of dealing with regular collect smaller amounts of Bitcoin at intervals.
It may not be flashy and money-making, but it’s a trusted, prudent approach to building long-term wealth.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade move carries risks, you should do your own research when making a decision.