Ask Doctor Bitcoin: Does Dollar Cost Averaging beat the market? [Free, #11]
The market is potentially entering a bear, but if you started to Dollar Cost Average at the top of a bull market, can you still get a positive ROI? We'll examine this technique today in depth.
Well, hello there!
This may be one of the weeks you want to mark on you calendar. It’s impossible to be 100% certain, but we could be crossing over into a crypto-bear market (or, this could be a brief inflection point before crypto skyrockets to as yet unseen new heights). It’s been a week of what feels like a coordinated attack on Bitcoin, with even the Pope weighing in with bad information regarding the greenness of Bitcoin mining. Either way this swings, these are important times.
I’ve been through a number of these cycles, and I figured as an elder statesman crypto-community member, I could provide a few helpful hints on what to expect and how to weather the near-term future, regardless of what it holds.
None of us have a crystal ball. Anyone saying with 100% certainty what the market is going to do probably has something they’re trying to sell you. Have a nimble strategy for your investment as well as your business.
If we’re entering a bear market, now is the time to be especially tuned in to new technological developments. Crypto market growth is cyclical. There will be another bull market, but until then, right now is when the makers make. Ethereum is a prime example of this: it was conceptualized and launched during one of the most brutal of crypto-winters. The stuff you’ll likely be pitched as a successful investment in the next bull cycle is conceptualized during the current bear cycle.
If we’re simply in a mid-bull correction, pay attention to what caused the correction. We saw frothy times the last month or two, with projects that had zero proclaimed purpose of functionality skyrocket to the top of the market cap charts. Remember what that felt like so you’ll know how to spot it again.
If you’re not a day or active market trader, now is the time to familiarize yourself with dollar cost averaging.
There’s absolutely no question at some level, cryptocurrency and blockchain are concepts that are here to stay. If you’re going to participate in that ecosystem, but aren’t going to focus entirely on actively managing your portfolio as a full time job, dollar cost averaging into bitcoin is the least risky, highest return way to approach it.
If you had invested $20 a week into Bitcoin, starting at the height of the last bull cycle (five years ago), you’d currently have amassed $114,269 in Bitcoin (2089% ROI).
If you had invested $20 a week into Bitcoin, starting at the beginning of the current bull cycle (two years ago), you’d currently have amassed $10,824 in Bitcoin (415% ROI).
If you had invested $20 a week into Bitcoin, starting at the height of the current bull cycle (six months ago, when prices were twice as high), you’d currently have amassed $807 in Bitcoin (55% ROI).
Today’s Blockchain Deep Dive addresses this very old and time-tested investment strategy, and is definitely worth the read.
Blockchain Bulletin
Fox announces blockchain animated series with Rick and Morty creator. Broadcast network Fox announced Krapopolis, an upcoming animated series about Greek gods that will be curated as NFTs on the blockchain.
Chinese crackdown ruffles crypto markets. Midweek price drops hit bitcoin and other cryptocurrencies when China took steps to rein in financial institutions and payment processors, reported by CNN – and then again when China made another statement on Friday.
BlockFi mistakenly credits large amounts of BTC to users’ accounts. In what amounts to a costly mistake crypto lending and trading business BlockFi, reported Forbes, accidentally credited large amounts of BTC as part of a promo into some user’s accounts.
Blockchain Behind the Scenes
Forte raises $185M for its blockchain game platform. Blockchain gaming infrastructure company Forte raises $185M at a $1 billion valuation led by Griffin Gaming Partners to enable non-fungible tokens.
EY invests $100M expanding products and launches DeFi contract sim. Accounting firm Ernst & Young invested heavily in engineering and developing its decentralized finance product suite including a smart contract simulator.
Blockchain Deep Dive: What is Dollar Cost Averaging?
Crypto users go through somewhat predictable phases on their journey: excitement by early gains, followed by trading experimentation, followed by market movement angst.
I’ve been on this journey before as well. I stayed the course long enough to organically discover Dollar Cost Averaging.
Dollar Cost Averaging is a practice that allows unsophisticated investors to achieve a degree of reliability of return in any market.
It doesn’t require specific fundamental knowledge, nor knowledge of trading technique.
It does require discipline and emotional detachment from market cycles.
David Salmon of Primerica penned “The Cow Story,” which he tells on video here (written and illustrated version in the full newsletter).
Dollar Cost Averaging requires the investor to pick an amount, and pick an interval on a market they anticipate on a long enough timeline to go “up and to the right.”
It doesn’t necessarily need to go straight up.
That market must fluctuate (and almost all do).
The investor must maintain discipline to continue the investment plan no matter what circumstances occur.
Technical Analysis: Crypto’s Inflection Point?
From VirtualBaconDAO’s Dennis Liu
Bitcoin is seeing a bounce today. Is this the end of the correction?
We are still below many key resistances, like the 200 daily exponential moving average and the 43 and 50K levels.
I will be selling half of all my Bitcoins when we get into this resistance range between 43K and 50K.
If we can get back above $50K, we are likely starting a new uptrend and I would gladly buy back in at slightly higher prices.
If we get rejected by the $43k-50K range, then we are likely starting a new downtrend.