GAINS Associates
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GAINS Associates

What Whales Don’t Want YOU to Know About DCA Investing.

Dollar-Cost Averaging (DCA) means spreading out your investments over time, in order not to miss the best entry points while never overly committing at the worst times.

It’s a simple solution for laymen worried about timing the market: just don’t do it, forget about market conditions — however good or bad — and invest a small, fixed amount each month. Easy enough.

Now, you may ask, is such a simple strategy actually profitable? The chart below investigates the question. For every 36-month window since September 2014, we compute the return on investment (RoI) in USD from investing a constant amount each month in Bitcoin. The first series begins in September 2014 and ends in August 2017, and the last one begins in May 2019 and ends in April 2022. In total, we have 57 such series, 57 1-month RoI’s, then 57 2-month RoI’s, and so on. From that, we compute the mean RoI for each length of time elapsed since beginning to invest.

The thick blue curve shows the results. It takes a little over a year to achieve an x2 on average. After two years, we’re close to x4, and x6 after three years. To put the numbers into perspective, this means that by simply saving $100 each month in Bitcoin, after three years you’ll have invested $3,600 but you’ll be holding a whopping $21,000.

‘But, you may say, I’m unlucky. You’re showing me an average but on the dice, I don’t roll 3 or 4, I usually roll 1. If that’s your case, you may be interested in the thinner curves: they show two potential worst-case scenarios. One has the lowest average RoI, the other has the lowest end-point. Both began in 2017 and mostly go through the 2018–2020 bear market. In both cases, RoIs toward the end of the period fluctuate around 1.5. While not stellar in the crypto world, a 50% profit in three years is huge compared to the opportunity cost: if you’re doing Bitcoin-DCA (an easy route), the alternative is more likely to be standard stock markets than moonfaring alt-coins — and we’re talking worst-case scenarios (what’s your worst-case scenario investing in regular ETFs?).

Lastly, you may wonder how safe you’re: if you put money in Bitcoin, how long do you need to wait before you can pull it out without a loss? As long as you aren’t investing close to the current cycle’s highest point, it doesn’t take that long actually, usually a couple months before you can at least break even. But, since you can never predict highest points with perfect certainty, it’s simply safer never to commit too much at any given point. Hence the wisdom behind DCA: most of the time, your money is safe and quick to recoup, and even in the worst case, you are never overcommitting.

A large majority of very successful traders do DCA-Investing. What are you waiting for? If you can’t beat them, just join them!

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