Dollar Cost Averaging or Lump-sum: Which Bitcoin strategy works best regardless of price?


Bitcoin (BTC) is down more than 55% six months after hitting a record high of $69,000 in November 2021.

The massive drop has left investors in a quandary as to whether they should buy BTC when it is cheaper, around $30,000, or wait for another market sell-off.


This is mainly because interest rates remain low despite the recent 0.5% rate hike by the Federal Reserve. 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 the largest pension, insurance, asset and hedge fund managers, shows the latest Bank of America data.

Several crypto analysts, including Carl B. Menger See More Shopping Opportunities Its price in the bitcoin market searches downwards.

But instead of suggesting lump-sum investing (LSI), in which investors throw away a large sum of money to enter the market, there is a safer option for the lay investor, called “dollar cost averaging,” or DCA.

Bitcoin DCA Strategy Can Beat 99.9% of All Asset Managers

The DCA strategy is when investors divide their cash holdings into twelve equal parts and buy bitcoins with each part each month. In other words, investors buy more BTC when its prices fall and less of the same asset when its prices rise.

The strategy has so far provided incredible results.

For example, according to Cryptohead’s DCA calculator, close to $20,000 each month—investors since investing in bitcoin in December 2017—has given investors a cumulative return of $163. This means almost 200% profit from continuous investment.

bitcoin dca calculator. Source: Cryptohead

The Bitcoin DCA strategy also stems from the opinion that the long-term trend of BTC will always be on an upward slant. Menger claims that by regularly buying bitcoin for a certain dollar amount, investors can “beat 99.99% of all investment managers and firms on earth.”

Cracks in DCA strategy

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

For example, a study of 60/40 portfolios by Vanguard, which looked at each 12-month time frame from 1926 to 2015, showed that all investments at once outperformed DCA two-thirds of the time, Which averaged 2.4% on a calendar. on year basis.

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This somewhat 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 in the future.

Thus, investing in bitcoin regularly with a fixed amount of cash may not always yield better returns than the all-in method.

BTC/USD daily price chart. Source: TradingView

But what about a combination of both?

Larry Svedro, chief research officer at Buckingham Wealth Partners, believes investors should invest with a “glass is half full” perspective, which means a mix of LSI and DCA.

“Invest one-third of the investments immediately and the remaining one-third during the next two months or the next two quarters at one go,” wrote the analyst at SeekingAlpha.

“Invest one-fourth today and invest the rest equally in the next three quarters. Invest one-sixth every month for six months or every other month.”

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, so you should do your own research when making a decision.