 | Many Bitcoiners intuitively believe in dollar cost averaging, but I wanted to really understand how a weekly DCA strategy has performed over time. So...I created a gigantic spreadsheet that contains every possible weekly DCA outcome for Bitcoin going all the way back to mid-2010. Depending on when you started DCA'ing and how long you continued, there have been over 225,000 different weekly DCA outcomes! (See Image 1 below, which is a screenshot of the entire collection of all possible weekly DCA scenarios. The yellow shaded cells represent all the weekly DCA starting/ending points that have been unprofitable.) Exploring these quarter million weekly DCA outcomes, I came to three interesting insights that I'll share here. Not investment advice, but good info to keep in mind. DYOR! 1 -- The longest unprofitable weekly Bitcoin DCA has been 172 weeks. There has never been an unprofitable weekly DCA of 173 weeks or longer. If you had started a weekly DCA September 8, 2019 and stopped on December 25th, 2022, you'd have bought Bitcoin for 172 consecutive weeks. At the end of this DCA period, the value of your Bitcoin would have been slightly less than the total amount you spent buying Bitcoin, and unfortunately you would have experienced the longest unprofitable weekly DCA in Bitcoin's history. (See Image 2 below to view the longest unprofitable DCA, with arrows marking the starting and stopping points on a Bitcoin price chart. Back on Image 1, the arrow corresponds to this longest ever unprofitable weekly DCA.) But...if you had continued for a 173rd week or longer, your DCA strategy would have returned to profit. Insight: while the past doesn't predict the future, it has been unprecedented for anyone sticking with a weekly DCA for a full four-year cycle to be unprofitable, regardless of when in the halving cycle they began DCA'ing. 2 -- Historically, the chances of a weekly DCA strategy being in a loss have decreased roughly linearly with the length of DCA, reaching a zero percent chance at 173 weeks. Across all DCA starting points, a weekly DCA of just 2 weeks has had a 41% chance of being underwater. A 25 week DCA has had a 33% chance of being underwater. A 50 week DCA has brought the chances of being underwater down to 26%, and so on. At 150 weeks of DCA, the chances of being underwater dropped to just 2%. And as I mentioned above, there has never been a 173 week weekly DCA that has ever been unprofitable. (See Image 3 below to view how the chances of a weekly DCA strategy being unprofitable have decreased with the length of a DCA strategy.) Insight: the longer a buyer continued their weekly DCA strategy, the better they have tended to do. Sticking with it generally pays off, even if a weekly DCA has been underwater after a few weeks or months. 3 -- The profitability (or unprofitability) of a DCA strategy is highly dependent on the last buy-in price (duh). Kind of intuitive, but a DCA strategy gets pummeled when you've been buying along at stable or rising prices, and then the price crashes below your starting price. Your whole stack is valued at the lower, most recent price, meaning each of your weekly buys which happened at a higher price are underwater. For example, the abrupt crash in early March 2020 around the start of COVID brought a 153 week DCA strategy which had been significantly profitable up to that point, into sudden loss. Conversely, a DCA strategy pays off big when you've been buying along at stable or decreasing prices, and then the price pops above your starting price. In this case, your whole stack is valued at the higher, most recent price, meaning each of your weekly buys which happened at lower prices are in profit. Insight: DCA'ers who were not discouraged and continued buying as the price of Bitcoin declined were rewarded most if the price of Bitcoin later increased. With a long-term DCA strategy for an asset that has tended to go up over time, buying through periods of price declines has paid off. Psychologically, it has been more useful to see stretches of price decline during a DCA period as great times to buy, rather than concerning times of portfolio devaluation. Anyway...doing the work here was helpful for my own understanding of a weekly DCA strategy, and I hope this is useful to the community as well. #forthekids Note: if you want to dig into the full dataset, you can find the entire spreadsheet of all 250,000+ weekly DCA outcomes in Bitcoin's history here. But be warned...the spreadsheet is massive and might bring your computer to a crawl! Image 1: all weekly DCA scenarios in Bitcoin's history Image 2: Longest unprofitable weekly DCA in Bitcoin's history Image 3: Historical chances of weekly DCA unprofitably as a function of DCA length [link] [comments] |
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