A fail-safe trade? Bitcoin traders with average dollar cost are profitable

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The weighted average cost of Bitcoin purchased has recently reached a level that means all investors who have consistently calculated the average cost of Bitcoin (BTC) are now in the dark, regardless of how long they have been held.

This news comes despite the fact that the price of Bitcoin, measured in US dollars, is still down more than 50% from its all-time high of around $69,000.

And yet, many financial experts in the space still cling to the idea that Bitcoin’s entire existence and nearly $600 billion market capitalization is based on some sort of Ponzi scheme. Others continue to deny that saving in the hardest form of money ever has been, so far, a great investment thesis that has surpassed all others.

Yes, there can be risks. And yes, volatility definitely comes with territory. But looking at these factors in a vacuum does not allow for proper analysis of any investment. The alternative strategies available should be taken into consideration, along with other variables such as:

What is the current macro environment and how might it change in the future? What impact could this have on the different asset classes and their performance? What risk/reward ratio does one strategy offer compared to others? Can diversification lead to an optimized risk and reward profile, or does YOLOing all-in offer better returns?

These are just a few potential issues that might be worth investigating with respect to claims against dollar cost averaging in BTC over the long term.

Let’s dig into some data that can help shed some light on this.

Bitcoin outperforms traditional investments

Some investors, like those at Adamant Research, have been pointing out the reality of Bitcoin’s most favorable risk/reward ratio for many years:

We claim that the long-term risk-reward ratio for Bitcoin is currently the most favorable of any liquid investment in the world. We expect it to trade in a range of $3,000 to $6,500, after which we expect a new bull market to emerge.

The group also made similar statements during the bear markets of 2015 and 2011.

How has a standard 60/40 portfolio performed over the past 5 years? What about gold? Real estate?

The following chart illustrates quite well the relative performance of several currencies and asset classes against BTC:

Needless to say, when it comes to comparing the performance of the DCA strategy in Bitcoin against any other asset, there is little comparison to be made.

Diversify or not?

Traditional asset managers tend to follow certain rules, one of them being the idea of ​​rebalancing. When a particular asset outperforms, the profits must be taken and distributed elsewhere, according to this line of thinking.

It can be considered a form of on-the-go diversification, if you will. But whether discussing diversification early on in building a portfolio or over time, how would such a strategy compare to going all-in on what has so far been considered one of the riskiest and most speculative assets of all time?

The answer is simple: it would be like selling the winner to buy the losers, as Michael Saylor said.

On a 5-year basis, BTC/USD is up 376%. Compare that to around 55% for the S&P 500 or gold.

5-year chart of BTC, SPY and gold. Source: Trading View

Taking Bitcoin profits at any time and putting them into other assets would have decimated a portfolio’s potential. Dividend income does not compensate, except for those who work with multi-million dollar portfolios. And even then, the potential income would be dwarfed by the capital gains from holding a large position in Bitcoin.

While the concept of risk often involves volatility and potential downside risks, what about the risk associated with playing it safe? Shouldn’t investors be worried about the potential for their portfolios to barely keep pace with inflation?

Related: CPI encounters low BTC supply 5 things to know about Bitcoin this week

Macro trends to consider

Proponents of Bitcoin and the DCA strategy have long argued that BTC serves as the ultimate hedge against monetary inflation and overall financial market uncertainty.

Despite critics’ efforts to destroy this narrative, it prevailed.

Look no further than the banking meltdowns of 2023 and the resulting Bitcoin rally for proof. Also, while the saying so much for an inflation hedge became popular in 2022 as BTC fell sharply from its all time high, this idea strangely seemed to be dropped in 2023.

YTD chart of BTC/USD. The vertical line indicates the day of the Silvergate collapse. Source: Trading View

When it comes to printing money, there is perhaps no more famous crypto meme than the go brrr money printer.

One of the main reasons the meme was so successful was the truth behind it: M2 money supply growth has been highly correlated to the price of BTC/USD since its inception.

While money supply and velocity have been trending down lately, there’s no reason to believe that the magic money printer is gone. More likely, it just lays dormant for a while.

Slowly but surely, we succeed

For many Bitcoin and crypto cynics, no amount of evidence will change their beliefs. Once a Ponzi scheme, always a Ponzi scheme in their opinion. But the hodlers took the orange pill and shared the truth while reaping just rewards.

Although they can invite others to the cause, no one can impose a worldview on another. Even if this point of view has long since become obvious.

BTC is up 87% year-to-date. Still, the price remains 44% below the all-time high of $69,000. The next halving is less than a year away, scheduled for May 2024.

Following this event and the prospect of increased institutional adoption in the immediate future, it is widely expected that the price of Bitcoin could reach six-digit territory and beyond during this cycle.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

This article is for general informational purposes and is not intended to be and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are the sole authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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