Had you had the extremely poor timing of buying bitcoin in early December 2017, you’d get a purchasing price of somewhere between $9,000 and $16,000 for total returns until today, now between a 202% and 437% return. Not terrible, but only a little bit less than what a DCA plan starting then would have yielded you — 452%.
If you have the foresight (or hubris) to think you can time the market and determine when bitcoin is selling for cheap, you don’t need any of these strategies; you just need to play the formula you think you’ve uncovered. Of course, chances are you’re wrong because almost nobody manages to time any market — at least not often enough and consistently enough that it’s distinguishable from luck .
The rationale for DCAing into any asset is that we can’t foresee the future: we do not know how to time the market. There are going to be shocks to the price of any asset, up and down. But if our thesis of bitcoin’s superiority is right, those shocks are going to be up more often than down. If you wait and delay purchases — which is the essence of DCAing — you’re more likely to expose yourself to missing out on upward shocks than protecting yourself from downward shocks.
If you think the dollar is a melting ice cube and you think your target asset is on a volatile journey with an upward trend, you will suffer more from the opportunity cost of waiting to enter than from the real loss of buying at a (local) top. They’re both losses: one just feels more real than the other. Dollar-cost averaging is a hedge against entry into fairly symmetrical trades. As an entry into an upward asymmetrical trade, it’s a losing proposition.
If you deviate from the DCA rule, thinking “I’m going to wait for a pull-back and opportunistically buy when it’s cheap” you might be waiting forever. More importantly, you’ve already returned to the mindset of trying to time the market — but without the rules, the safety mechanisms, and the analytical tools to actually do it. You’re like a central banker, refusing to honor the rules you know work better over time , setting them aside to trust your gut feeling, to make policy on a whim, on extreme fears, or the present bias and action bias which most people succumb to.
Even if you’re not sold on my contrarian take so far, keep in mind that most people’s finances are structured for DCAing anyway: you earn an income every month, and insofar as your conviction remains or strengthens, you’ll likely stack more with whatever future surplus you manage to eke out from spending less than you earn. To needlessly DCA even more, out of a dollar stash you’re already holding, is inconsistent with what you say you believe.
Investing on top of a structurally upward-moving trajectory, a positive-sum game, tilts the stakes in favor of getting in earlier (once again, “time in the market…”). Against that, DCAing operates like an insurance: you protect against the worst negative outcomes, but you pay for it dearly by giving up most of the grand upside you say is coming.
If you think yourself in control of your investment decisions and capable of withstanding the psychological pain of outlier events (buying at, say, $64,000 right before this year’s 50% drawdown), the optimal strategy is to buy as much as you can, as early as you can. Ironically, the more bullish you are on bitcoin’s (long-term) prospects, the less favorably you ought to look at DCAing.
Smooth your purchases over time if that makes you sleep better at night, but for superior long-term performance you’re probably better off just plunging headfirst into the deep end.
This is a guest post by Joakim Book. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
