Bitcoin traders who consistently employ dollar-cost averaging (DCA) are consistently profitable, suggesting a dependable trading strategy.
Investors who have utilized dollar-cost averaging into Bitcoin over time have seen profitability, irrespective of when they initiated this investment approach.
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The weighted average cost of acquired Bitcoin has reached a level where investors utilizing a dollar-cost averaging strategy are now in a profitable position, regardless of the duration of their holdings. This achievement comes despite Bitcoin's price still being more than 50% below its all-time high of around $69,000 in terms of US dollars.
Dollar-cost averaging (DCA) involves making periodic fixed-dollar purchases of an asset, effectively spreading out the buying process over time to mitigate volatility. Given Bitcoin's renowned price volatility, DCA is an attractive strategy.
Despite enduring doubts about the legitimacy of Bitcoin and its market cap, which currently stands at nearly $600 billion, some individuals still view it as a Ponzi scheme. However, it's important to consider various factors when evaluating investment strategies. These factors may include the current macroeconomic environment, risk/reward ratios, diversification, and other variables.
Bitcoin has outperformed traditional investments, including gold, real estate, and a portfolio consisting of 60% equities and 40% bonds. When comparing the performance of a DCA strategy in Bitcoin against any other asset, Bitcoin stands out as the clear winner.
Traditional asset managers often advocate for rebalancing when an asset outperforms, suggesting that profits should be reallocated to other assets. However, shifting from Bitcoin to other assets would have diminished the potential returns for a portfolio. Income from dividends may not compensate for this, except for individuals with multi-million-dollar portfolios. Even in such cases, the capital gains from holding a significant Bitcoin position would dwarf the potential income from dividends.
5-year chart of BTC, SPY and gold. Source: TradingView
Bitcoin proponents have long argued that Bitcoin serves as an ideal hedge against monetary inflation and financial market uncertainty. Despite efforts to challenge this narrative, it has persisted. Recent events, such as the banking collapses in 2023, support the idea that Bitcoin is a reliable hedge.
YTD chart of BTC/USD. Vertical line indicates the day of the collapse of Silvergate. Source: TradingView
When it comes to monetary policy and money supply, Bitcoin's price has shown a strong correlation with the growth of the M2 money supply. Even though money supply and velocity have been trending downward recently, the impact of quantitative easing (QE) and money printing is unlikely to disappear entirely.
Hodlers of Bitcoin have witnessed its resilience and are reaping the rewards. While Bitcoin enthusiasts can invite others to join the movement, it's important to respect differing viewpoints. The year-to-date performance of Bitcoin remains strong, and the next halving event, scheduled for May 2024, along with increased institutional adoption, is expected to drive Bitcoin's price into six-figure territory and beyond in this cycle.
