Is Dollar-Cost Averaging the Ultimate Passive Bitcoin Investment Strategy?

If you bought $100 of bitcoin every week starting when it was $20,000, the all-time high, you would currently be up +75% on your investment.

It has been 87 weeks since bitcoin topped out at $20,000. Euphoria was in the air, your uber driver was telling you all about this new digital currency that was going to change the world. Eight months later, you’re down 85% on your initial investment. The $100 you scraped together and sent to coinbase is now only $15. You panic sell the bottom because you can't emotionally withstand the drawdown on its way to 0. Don’t worry, you’re not alone.

Speculative “bubbles” happen everywhere. Whether it be cryptocurrency, early internet stocks, marijuana stocks, or tulips. The difference with bitcoin is that it has gone through three separate booms and busts. Three times it has reached a new all-time high, then gone down 85% in value. Every time this happens, people write bitcoin off as dead, “This time is different,” they say. Bitcoin went from $20,000 to $3,000, an 85% drawdown throughout 2018. At the top everyone was telling you to buy; at the bottom, everyone was saying that it was “dead.” Fast Forward less than a year later, bitcoin is the best performing major asset class in the world, hardly “dead.”

With a market characterized by its volatility, how can an average person invest wisely? You’re not going to buy the bottom, and you won’t sell the top, so what can you do? 

The key is playing for the long term. Expand your time horizon and give yourself a margin for error. Slowly building a position over time works well not only financially, but emotionally as well. You must determine on your own how big of a position you want to accumulate and over what period.

Bitcoin provides an asymmetric return profile. An asymmetric return is the set of possible results of an investment strategy where the upside potential is greater than the downside risk. Bitcoin has a current market cap of $200 billion, with a potential to be worth trillions of dollars in the future.

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