Original author: A Fox
Original source: tokenpage.xyz
Original title: Dollar Cost Averaging into Bitcoin
Compiled by: TechFlow
Abstract
Passive observers are those who want to invest in cryptocurrencies but do not want to be active participants in the market and are therefore best suited to using a DCA strategy.
Buying Bitcoin using DCA means buying Bitcoin in fixed dollar amounts at fixed intervals, such as buying $100 of Bitcoin every month.
DCA is a superior strategy because you never risk too much, you get the best average Bitcoin price, and you will still outperform most traders in the long run.
Investing in BTC with DCA avoids the round-trip profit trap of other coins because Bitcoin is the most resilient: it survives every bear market and emerges stronger.
People who don’t work in cryptocurrency full-time often ask me for advice on what they should buy.
The fact is, if you don’t plan to spend time researching cryptocurrencies, the best strategy that has been proven over the long term is to invest in Bitcoin using a Direct Investing (DCA) strategy.
Why did I write this article?
With the price of Bitcoin hovering around $70,000, close to its all-time high, and Bitcoin’s halving approaching in about eight days, interest in the cryptocurrency continues to grow.
The rise in cryptocurrency prices as a growth mechanism attracted more and more people into the space. Some of them became very interested and decided to stay, but most just became passive observers.
This article is for those mostly passive observers!
These people typically want to test the waters and invest in cryptocurrencies, but don’t want to become a full-time Web3 participant and spend all their time learning about different currencies, projects, and going down countless rabbit holes.
Passive observers usually get too excited in the beginning, buy a bunch of shitcoins their friends told them to buy, only to find themselves losing a lot of money and losing most of the money they invested.
This is a very common path for newcomers in cryptocurrency.
If you don’t want to go through this and your only goal is to passively invest and earn a profit, then you should probably go with “regular investing”.
Fixed investment
One of the simplest investment strategies is fixed investment, which basically means investing a fixed amount of money in Bitcoin (or any other asset) at fixed intervals.
Most people only receive a paycheck once a month, so usually people pick a fixed amount they feel comfortable with, like $100 a month, and save it. A regular investment into Bitcoin is to take out that $100 every month and use it to buy Bitcoin, although you can also do it daily, weekly, or biweekly, whichever you prefer.
DCA is a strategy that makes purchases at regular intervals. It eliminates all risk of investing more than you can afford, and you buy at the average Bitcoin price over time.
In fact, it’s so easy to get into Bitcoin that most people simply don’t believe it can work and decide not to do it, instead trying some more complicated strategy which will most likely make them lose money.
Why fixed investment is a superior strategy
Now you could simply put $100 a month into a savings account, which is what most people do. However, all government sovereign currencies are inflationary by definition, as all global central banks mandate a small amount of inflation, meaning that the same $100 you save will buy less stuff over time.
At the same time, since the total supply of Bitcoin is fixed, with only 21 million coins ever created, it is deflationary in the long run. Therefore, the same $100 in Bitcoin purchased today will be worth more over a long enough period of time because the price of Bitcoin tends to rise.
Simply put, Bitcoin is a hedge against inflation because despite its wild price fluctuations, its fixed supply means that as more and more people get into Bitcoin, the price tends to rise.
The next question is why not buy as much Bitcoin as possible now?
Well, since the price of Bitcoin is extremely volatile, if you buy right at the beginning, you may buy at a local top and end up paying a higher price than you need to buy Bitcoin. By buying a fixed dollar amount each month, you will pay an average price over a period of months or even years and tend to get a better price. We can illustrate this below.
On the website dcabtc.com, you can estimate the returns of different regular investment strategies. By default, we can see here that investing $10 per week will increase your total investment of $1,570 by 112.7% after 3 years, a total of $3,339.
Meanwhile, if you had simply purchased $1,570 three years ago, instead of investing $10 weekly, you would have only had a gain of about 20%, instead of the 112.7% gain shown above, and would only have about $1,890 today, far less than $3,339.
Importantly, as I discussed in the previous section, if you invest regularly and in amounts that don't have a big impact on your financial situation, you will be able to prolong the time of this process. Therefore, not only will you get the best average price, but you will never risk too much, and even if the price fluctuates too much, you won't be kept awake at night by the fear of losing money.
Bitcoin enthusiasts encourage regular Bitcoin investment so much that they even have a name for it: “stacking sats.” Since the smallest divisible unit of Bitcoin is called a satoshi, or “sat,” if you invest regularly, you’ll be regularly stacking those sats!
Bitcoin is built differently
When I tell most people to invest in Bitcoin, they either feel like they’re missing out or think it’s too easy and insist they should buy a bunch of other coins instead.
As a passive observer, this is often a mistake. The reason for this is that while many coins may rise more than Bitcoin in a bull market, they also lose more in a bear market, and they generally don’t recover to their previous highs.
It is very common for people to “roundtrip” their profits because they buy a coin, see the price surge, and then continue to hold on to that coin even when the bear market sets in and they see the price of that coin drop more than Bitcoin. They will hold on to that coin hoping it will come back, but ultimately it never does and they lose more than they would have if they had just held Bitcoin.
Bitcoin is built differently.
There are many reasons why Bitcoin is given more fundamental value, which I can discuss in future posts. Bitcoin's price is often the main driver of market ups and downs, and although it does not have the same yield as other coins, it will continue to rise even after other coins exit the market.
Therefore, Bitcoin is the safest haven for passive observers who want to invest in cryptocurrencies but do not plan to follow the market regularly.
Even though I primarily recommend Bitcoin, you could argue that Ethereum has become a pretty decent safe haven today, and Solana may reach that point as well. However, I still recommend that passive investors invest in Bitcoin first, and if they really want, then they can invest in Ethereum second.
Importantly, both of these have a fixed or decreasing supply, while SOL does not. Bitcoin will only ever have 21 million in circulation, and Ethereum is currently actively destroying ETH within its algorithm, so the supply is actively decreasing. This is an important factor in long-term value appreciation, of course, there are other factors for price increases.
As an active market participant cycle
This article is mainly for passive observers, but even if you want to do more than that and want to participate in more opportunities in the crypto market, investing in Bitcoin is still a good strategy, but perhaps you can do better by taking more risk.
As mentioned above, most tokens and NFTs tend to lose to Bitcoin in the long term, however, during the peak of a bull market, many tokens and NFTs may outperform Bitcoin. Picking the right tokens and NFTs during the cycle remains an obvious challenge, but taking a percentage of risk on the narrative of the current cycle may be a wise idea.
For example, it’s now clear that there’s a lot of money to be made in things related to artificial intelligence, meme coins, and Bitcoin’s Ordinals and Runes, so taking a certain amount of risk in these narratives could result in greater returns than simply holding Bitcoin.
However, a big problem here is that most people don’t understand the four-year cycle of cryptocurrencies and could lose out on these profits as mentioned before.
So if you want to be an active market participant then make sure to sell your position in time before the cycle ends because it is impossible to accurately predict when it will end, but when it does end, the prices of these coins will not return to their previous highs.
It’s important to end this post now and point out that this advice is just my personal opinion as someone who has been participating in and observing the markets for over 8 years.
As people often say in crypto, none of this is financial advice, make sure you do your own research. In other words, take my opinion as just another point of view in the web content, don't take it as the bible of truth, I'm sure you won't. Make sure to read thoroughly and do your own research before investing your own money!