Bitcoin Forum

Seeing a dip like today can be disheartening or even may put a smile on your face, depending on what technique you use to buy BTC

For those that don't know what Dollar Cost Averaging is, DCA is an investment technique where you buy a fixed dollar amount of an asset at regular intervals. It is particularly effective when dealing with more volatile assets such as Bitcoin.

Let’s think of a scenario where at the start of this year (2018) you decided to buy $900 worth of Bitcoin. You could either have bought it in one lump sum on January 1st, or you could spread out the $900 by buying $75 worth of Bitcoin each week over 12 weeks.
 
In which scenario would you end up with more Bitcoin?

In Scenario 1, where you buy $900 worth of Bitcoin in one lump sum you would have ended up with 0.046 Bitcoin based on its market price on January 1st

In Scenario 2, where you spread out the $900 over 12 weeks starting from January 1st, you would have ended up with 0.060 Bitcoin based on the market price every 7 days until the 17th of March.

This is a difference of 0.014 BTC or a 23% difference in favor of Dollar Cost Averaging.

I must say I am also biased when it comes to DCA as the business I am part of a NZ company - mycryptosaver.com that specialises in it. Just thought I would give my 2 cents (or my 2 satoshis  ;) )


 

Do the scenario for January 1st 2017 or November 1st 2017 as a start date and tell me how good that Dollar Cost Averaging technique is ...

If the prices go down during those 12 weeks, of course, it's better as you're buying at lower and lower prices, but if the prices go up you end up with fewer coins bought.

So, it's not about the technique it's more about predicting the market. Which nobody can...

Absolutely spot on!  Well said....

The Dollar Cost Average Bitcoin is decleared as the safest method currently. Because in this method everything is about predicting the market not the technique. So it is easy and safe for the investors.

that's why the OP picks the recent scenario of decreasing market price of bitcoin
the idea of DCA is reducing volatility risk by buying assets periodically
DCA would work as good as intended, reducing volatility effects not maximizing profit
DCA investment strategy works best on declining markets but yields less profit on increasing markets

this is a very good strategy and i also suggest and use it myself.

but the thing is these strategies on their own are not going to lead to success. you also have to combine them with some analysis. for example why would you choose strategy 2 over 1 or vice versa. lets say you did the same last year. you would end up with a lot less bitcoin because price  was rising.

you see as long as you have a good reason for it like analyzed the market and decided there is a chance of drop then using it is a good idea not just using it for the sake of having a strategy.

For those that don't know what Dollar Cost Averaging is, DCA is an investment technique where you buy a fixed dollar amount of an asset at regular intervals. It is particularly effective when dealing with more volatile assets such as Bitcoin.Well I guess I understand what he is trying to say, but I don't really agree with him on most aspects. Economy leaders won't of course just switch to bitcoin over night, specially if that doesn't give them any advantage. I guess it's no surprise why the financial system had hardly evolved at all during the past decades. It's because people in power don't want that to happen. Of course that bitcoin was made to disrupt that power, so they can't just ignore it, and will have to deal with it eventually.In Scenario 2, where you spread out the $900 over 12 weeks starting from January 1st, you would have ended up with 0.060 Bitcoin based on the market price every 7 days until the 17th of March.If the prices go down during those 12 weeks, of course, it's better as you're buying at lower and lower prices, but if the prices go up you end up with fewer coins bought.So, it's not about the technique it's more about predicting the market. Which nobody can...

my technique is if you have $9000. break it up into 3-5 allotments

lets use 3 allotments to save explanations

so you buy $3000 of btc.. and you dont get greedy. all your looking to do is make 1-5% (prferably 1%) and just grab profit as soon as you can.
so you set the sell price at the low % increase and let it hit..  
if the price goes up. you win and then can use the $3030(1%) again
if the price goes down, so what, leave that first order at the sell price and just use another $3000 allotment at a new lower price and set that at ur low % sell price.
for fiat lovers


its way better to take 1% a few times a week than it is to throw it all into one order and hoard for months/years hoping for 200%
..
once you get the concept and can control your greed to not exceed a few %, thus allowing you to flip the funds and repeat quickly. you will see all them small percentages all add up

Dollar cost averaging is a good strategy for those looking to invest more fiat and those who want to lower their breakeven price but the example given is pointless. You described a period where the price was falling, if you took the same approach in a bull market you'd end up paying more than buying in a lump sum.

or the OP could be seen as, in a bull market. instead of waiting 12 weeks (where price rises) while trying to save up $900 to then buy $900 worth at week 12.. (losing out on the week 1-11 'discount' .. its better to buy $75 every week as soon as you get $75

..
but each way is different. all that matters is dont plan to put all ur eggs into one order. and then be months without any spare funds to take advantage of any movements inbetween

Dollar Cost Averaging Bitcoin or any alt coin in particular is not always a good idea, I would rather catch the bottom and then hold long term.

lol catch the bottom?
so you went back in time and caught the 2009 bottom of pennies
or
oh wait. that was the only true bottom..

what you are really saying is. when the price moves down, you buy..
so your saying you did not mortgage your house to buy in at one time but have put some in at one point and some more at another point and some more at another point when the price goes below a short term average (i rfer to as discount days)

you cant catch the bottom until its too late. as you only realise its the bottom after it has risen again, and risen for long enough to realise that it wont go back down again to define that past as the 'bottom' . meaning you missed it

the only way to play it safe is to not throw it all into one order and instead put funds into smaller allotments of funds and thus be in more control of buying/selling. instead of throwing and waiting

I'm new to investing, but I like your idea.

With this kind of investment it is always clear when you have a profit or lose money.

I registered for a binance and try this method of trading

Great point. Bitcoin have market acceptance because it is the best crypto in the world. That’s why peoples are connecting with bitcoin. I think this initiative also works for bitcoin.

that's easier said than done :P How can you tell it's the bottom price right before recovering back up?
unless you have sixth sense or premonition, predicting the bottom price is not that easy
even with fundamental & technical analysis combined you can't precisely catch the bottom price

you can't really say it is "the only safe method" in my opinion.
one might argue that in a bear market which also has a lot of manipulation to push the price lower and lower it is best to stay away and then start your purchases. for example i personally prefer to always stay away from the market whenever i feel strange things are happening and then come back when i see it become more logical. i accept the fact that i might "miss out" but i prefer the lower risk of that. and then based on what i see i buy then. splitting the buys into multiple parts is a good idea though. but i say don't overdo it.

Right, in that scenario where you don't have the money immediately available then it makes some sense but I wouldn't call this dollar cost averaging, and in fact you are investing everything you have at that time. It is beneficial to have spare funds to invest in bear markets but many (myself included) don't do that. Simply because I invested a small amount of fiat initially and it's not worth much more than I would have initially invested. There's little point in me dollar cost averaging by investing about 10% of my portfolio. Of course you could counter that and say I have too much invested but it depends on the approach you take. I like to think that my investment is still only the few hundred dollars i invested on which I am up nearly 100x instead of considering the actual current fiat value, that way I can stay sane.

Mainly most of the coins are infected in the market so this is normal btc will be affected but you should have some patience because it may increase price but you have to wait for it because patience will give you success also the price is increasing so stay happy.

If you are into short term investments, the best thing for me is buy low sell high technique. I'm taking advantage in dips like this. This is the moment where we can profit more by next year after the next bitcoin halving. As we all know that as the difficulty of bitcoin increases, its value will increase as well. I'm very positive that by next year, bitcoin's value will not go down to $10k.

I don't get the last thing...
It yields less profit compared to what?

Because if I would have bought  1BTC at 3000$ is far better than buying 1/4 at 3000 , 1/4 at 4000, 1/4 at 5000 and 1/4 at 6000. In the second scenario, I would have spent 4500$ for that BTC so it only beats the strategy of waiting and buying when the price is at the ATH.

As I said, DCA works only in a declining market. If the market goes up you're losing money with it.
So bottom line, you first have to predict where the market is moving before deciding on this strategy...which is quite impossible.


Franky, your technique might bring some pretty good results or might end with you having to wait for years, it's the same as with the DCA, it depends when you go in.
Because if you applied this when the coins were at 15000 on the downtrend the results are pretty damn bad.
If you did this on the way up, you would already have cashed in.  :)

I don't think that there is a technique that is bulletproof, even hodl will at some point fail.

compared to initial full investment at once, lumpsum investment in the beginning

DCA doesn't work that way.
Instead of fix amount bought, you're buying with fixed amount investment spread equally at scheduled times
for example... 1BTC with $7,500 at once compared to
DCA is buying bitcoin with $1,250/month in the course of 6 months, will total less than 1BTC on increasing markets
so I'm losing 'potential gain' of my money (also have less BTC) but I haven't actually lose my real money
it's just our different perceptions on the 'profit' matter... don't take it too seriously

I said the same thing but I don't see it as "losing money" because I  haven't gained it if I haven't bought it
I prefer to see it as losing "potential gain"

much agree on this. every technique has its own dis/advantages,
we must choose the best one based on our strategy and prediction against market  

Yeah I
Yeah, it doesn't work that way  :(
Don't know what was on my mind when I was typing that....
I should have said it like "use 1/4 of your money at 3000,4000,5000", my head was doing the math and my hands were typing something else.. :)

And the results of the BTC bought are 0.25, 0.18, 0.15 , 0.12 to a total of 0.7 compared to a full one considering the initial full investment. So, the "potential gains" in my scenario that you would have "lost" are 0.3 BTC and if we consider the top price of 6000$ the "avoided profit"  ;D is actually 1800$.



Yup, to me this technique is about avoiding stuff, be it profit or loss.
It does reduce loss on a downtrend market but it can't be labelled as "safe".

Dollar cost averaging is also a pretty decent strategy to use when you have a BIG holding but want to make the average price drop down. If you bought 1 Bitcoin at $10,000 last month or so and now purchased another 1 BTC at $6,500, the cost for your Bitcoin would then be $8,250 per Bitcoin. It could be considered throwing good money after bad, but that's a pretty decent strategy when a volatile market moves against you for a sustained amount of time. Usually you can get that bump upwards one day or week to then be even.