Nobody can time the market. Not even in Bitcoin markets. But what can be timed is our investments.
With Bitcoin’s price rise and fall being one that cannot be adequately predicted, we should focus on what we can control. We can’t control Bitcoin’s price, but we can control when we choose to buy it. We’ve already looked at the importance and the profitability of buying Bitcoin through a dollar-cost averaging strategy, but ‘averaging’ is not the same for everyone. Hence, the returns vary.
In this analysis, we’ll look at which averaging period would’ve fetched us the highest return based on the price data from the beginning of 2020 to 20 November. We’ll look at four averaging periods, daily, weekly, monthly, and quarterly.
To reiterate the strategy. We’ll look at buying a certain dollar-amount of Bitcoin in each of – every day, every week, every month, and every quarter. The amounts will be adjusted to present a common capital. What this means is that the total amount invested would be the same. Say if I invest $10 on the daily scale, I would invest $70 on the weekly, $300 on the monthly, and $900 on the quarterly. Let’s see how it plays out.
A $10 investment every day between 1 January to 20 November would span 325 days, and hence the total amount invested would be $3,250. Again, this would be across every day, not in a lump sum at the beginning of the year. This is how the daily DCA strategy pans out.DailyValueAmount $ 10.00Buys325Bitcoin₿ 0.347220Price at close $ 18,696.00Investment $ 3,250.00Value $ 6,491.63Change$ $ 3,241.63Change%99.74%
The daily $10 investment would result in 0.0347 BTC bought, which at the end of the period i.e. on 20 November could be sold at $6,491. A $3,250 investment would hence yield a return of 99.7 percent. Not bad for a mere $10 invested daily.
If you change the daily DCA to a weekly one, does your profit go up or down, or stay the same? As mentioned above, we’ll be buying seven times the amount in each buy as the daily DCA, because there are seven days in one week, and this keeps our capital the same. So, for the 47 weeks in our time period, we have a total of $3,290 investment, and here is the result of it.WeeklyValueAmount $ 70.00Buys47Bitcoin₿ 0.348727Price at close $ 17,773.00Investment $ 3,290.00Value $ 6,197.92Change $ 2,907.92Change%88.39%
A final return of 88.3 percent as per the price of the last Wednesday i.e. on 18 November at $17,773. The $3,290 investment resulted in 0.348 BTC sold for $6,197.9. The return while still handsome, is lower than the daily DCA.