There is much to be gained from taking a deep dive into Bitcoin. The learning experience is rewarding in more ways than one. Not only can you gain monetary benefits but also, you gain a deeper understanding of the world of finance. Key buying and selling strategies open up windows of opportunity for traders of Bitcoin.
Dollar Cost Averaging
Dollar-cost averaging is a method by which one invests a fixed amount of USD into BTC, using regular time intervals. An example of DCA can be found where one purchases $10 of Bitcoin every week. Investors looking to purchase Bitcoin over long periods of time may prefer to use this method as it protects them from allocating their capital at the wrong time (when price peaks).
The Lump Sum investment strategy involves the investment of all available capital at once. As an example, $10,000 could be spent on any month, the returns of which could be calculated based on the specific point in time that the money was invested. In order to determine the returns, a chart could be made where the X-axis is the date that the investment was made as a lump sum and a Y-axis, which is the value of the investment at the current time.
Lump Sum vs DCA Historical Performance
Data reveals that 67.9% of the time, Lump Sum results in higher returns over the monthly dollar-cost averaging strategy. Data also suggests that DCA could be a better strategy to use in bad times. Investors need to decide on what decision they would regret more- missing out on gains in the market or taking part in large losses. While a Lump Sum strategy can give you a higher probability of larger gains, you could also face more losses.
Mayer Multiple is the multiple of the current Bitcoin price over the 200-days moving average. It allows traders to analyze Bitcoin prices in a historical context. For example, a 200-day moving average of $6858 presents a Mayer Multiple of 1.47 for the history of Bitcoin. Unlike certain other strategies, it provides a deeper perspective of the historical performance of the cryptocurrency.
A Simple Bitcoin Savings Plan
If you don’t feel ready to dive into more complex trading strategies or you would rather balance out your portfolio with simpler trading strategies, you could follow a simple Bitcoin savings plan. With a simple deposit plan, you can invest in Bitcoin at predetermined points of each month. With this type of strategy, you needn’t worry too much about the technicalities of trading as you may have to with other strategies.