Warren Buffett has a message for younger investors: Average dollar cost across major stock indices. However, the data shows that The same strategy has worked very well for Bitcoin (BTC) over the past decade.
The term dollar cost averaging (DCA) refers to a strategy in which an investor divides the total amount invested in periodic purchases of a given asset. The theory behind this investment strategy is that if an asset goes up or down, investors can benefit from reducing the negative effects of price volatility.
Buffett has long been bullish about the average cost of the dollar cost of stock indices. Specifically, The “Oracle of Omaha” likes SP 500 index funds and average dollar cost in the index.
But the data shows that The same strategy has proven very effective for Bitcoin over the past few years. For five years in the past decade Bitcoin achieved 100% profit Per year. Furthermore, 98% of Bitcoin addresses are currently in the profit zone.
History has shown that averaging the dollar cost in Bitcoin works
As an an example, If someone had decided to invest an average of $ 100 in Bitcoin since January 2014 and their total investment had reached $ 35,700, they would have had a return of 1,648%, or around $ 589,000.
Also, the price of Bitcoin on Aug 6 was $ 11,744 for Binance. At this moment CoinMetrics researchers said the average dollar cost of an investor, averaged in BTC from its high of $ 20,000, would have resulted in a gain of 61.7%. they write::
“Although #Bitcoin is still trading 30% below ATHs, the average dollar cost since the December 2017 market peak would be 61.8% or 20.1% annually.”
Since then, the price of Bitcoin has increased from $ 11,744 to $ 13,840, up 17.9% in three months. The average return of an investor who chose to use this strategy from the high of $ 20,000 is now much higher.
There are several reasons why investing in Bitcoin has worked for a long time regardless of price volatility. One of them is that Bitcoin is a tiny store of value compared to gold.
Bitcoin has seen a significant increase over the course of 2020 institutional demand. BTC is attractive to institutions because it is a safe haven and a potential investment that could generate exponential growth at the same time.
The strategy of averaging the dollar costs worked for Bitcoin because BTC can have extreme correction phases. But during the bull cycles When infrastructure and fundamentals improve significantly and institutional insanity occurs, their value can rise rapidly.
For exampleIn March 2020, the price of Bitcoin fell sharply on major exchanges to just $ 3,600. As of November 1st, the price of BTC is over $ 13,800. since then more than three times.
Most BTC addresses are already growing
Glassnode analysts found that out 98% of all Bitcoin addresses are in the profit zone. You have subtracted this statistic Analyze when BTC first enters an address and evaluate the price at which it was bought. They declared::
“98% of all # Bitcoin UTXOs are currently in profit status. A level that has not been reached since December 2017 and is typical of previous BTC bull markets. “
With an asset that has the potential to grow exponentially, high risk strategies could be difficult to manage. As, Averaging the dollar cost is usually a convenient and efficient way to contact BTC.