Which Bitcoin Strategy Works Best Regardless of Price?

Bitcoin (BTC) is down over 55% six months after hitting its all-time high of $69,000 in November 2021.

The massive drop has left investors in a tough spot on whether to buy BTC when it’s cheaper, around $30,000, or wait for another market sell-off.

This is mainly because interest rates are lower despite the Federal Reserve’s recent 0.5% hike. Meanwhile, cash holdings among global fund managers rose 6.1% to $83 billion, the highest since the 9/11 attacks. This suggests risk aversion among top pension, insurance, asset and hedge fund managers, the latest Bank of America data shows.

Many cryptocurrency analysts, including Carl B. Menger, see more buying opportunities on the Bitcoin market as its price looks for a bottom.

But instead of suggesting a lump sum investment (LSI), where investors shell out a huge sum to enter a market, there is a seemingly safer alternative for the lay investor, called “dollar cost averaging”, or DCA.

Bitcoin DCA strategy can outperform 99.9% of all asset managers

The DCA strategy is when investors divide their cash reserves into twelve equal parts and buy Bitcoin with each part every month. In other words, investors buy more BTC when its prices go down and less of the same asset when its prices go up.

The strategy so far has provided incredible results.

For example, one dollar invested in Bitcoin every month after it peaked in December 2017 — close to $20,000 — gave investors a cumulative return of $163, according to CryptoHead’s DCA calculator. That means a profit of around 200% with consistent investments.

Bitcoin DCA calculator. Source: Cryptohead

The Bitcoin DCA strategy also stems from an opinion that the long-term trend of BTC would always remain sloping to the upside. Menger claims that buying Bitcoin regularly for a certain dollar amount could cause investors to “beat 99.99% of all investment managers and companies on planet Earth.”

Flaws in the DCA strategy

Historical returns in traditional markets, however, do not support DCA as the best investment strategy. Instead, the LSI strategy proves to be better.

For example, a study of Vanguard 60/40 portfolios, which analyzed each 12-month period from 1926 to 2015, showed that one-time investments outperformed DCA two-thirds of the time, averaging 2.4% in a base calendar of the year.

Related: Bitcoin Ends Week ‘On Edge’ with S&P 500 Officially Entering Bear Market

This slightly raises the possibility that Bitcoin, whose daily positive correlation with the benchmark S&P 500 index rose to 0.96 in May, will show similar results between its DCA and LSI strategies going forward.

So, regularly investing in Bitcoin with a fixed amount of cash may not always give you better profits than the all-in method.

BTC/USD daily price chart. Source: TradingView

But how about combining the two?

Larry Swedroe, research director at Buckingham Wealth Partner, believes investors should invest with a “glass half full” perspective, meaning a blend of LSI and DCA.

“Invest one-third of the investment immediately and invest the remaining one-third at a time over the next two months or next two quarters,” the analyst wrote in SeekingAlpha, adding:

“Invest a quarter today and invest the rest evenly over the next three quarters. Invest a sixth every month for six months or every two months.”

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 trading move involves risk, you should carry out your own research when making a decision.