Is there a better way than Dollar Cost Averaging into Bitcoin?

Can we really predict Bitcoin's cycle? So, here’s the deal with Dollar Cost Averaging (DCA). A lot of folks first find out about Bitcoin when the market is on the rise, throw in some cash, then freak out during the downturn and sell off. This often leads to losses in USD, even when they’ve invested in something that has shown significant growth over time. By setting aside a fixed amount to invest in Bitcoin each month, it simplifies things. You don’t have to stress about picking the right time to buy, helping you avoid those classic pitfalls of buying high when everyone’s hyped and selling low when things look grim. But let’s talk about a different approach countercyclical buying. If we could actually tell when Bitcoin is hitting its highs or lows, we could adjust our strategy. For instance, we could pause our DCA when the market is booming, and then ramp it up during the bear times. Maybe even sell a bit of our holdings when prices peak and buy back in when they drop. Consider this a tweaked DCA approach. In this post, I’m looking to craft a solid plan for timing Bitcoin cycles. So here’s the takeaway: a savvy and disciplined investor can do better than just sticking with a basic dollar cost averaging method by timing their purchases based on where we are in the price cycle. If Bitcoin is looking cheap (like 40% below its trend), I’d go all in. If it seems pricey (over 750 days ahead of trend), I’d hold off on buying more and might even consider selling some. And if Bitcoin's price is pretty much in the middle, then I’d just keep up with the DCA plan. Let’s break down trend versus cycle. I’ve tracked Bitcoin’s price history from July 16, 2010 (0.07 €) to now, with a staggering rise to March 20, 2024 (64,000 €) reflecting an increase of six orders of magnitude.

Long thread, but it's really informative. The only suggestion I can give is you might need to resize your image a bit smaller, probably like "[img width=700" or less, because it's too big IMO. Selling Bitcoin for gold or vice versa isn't easy because the seller won't accept Bitcoin or gold as currency, so you're need to sell your Bitcoin to fiat then buy gold, it would cost additional fees. The thing that I learn, despite Bitcoin keep break new ATH for every four years, but actually the trend tops are getting smaller and smaller, probably in the next two halving events, the tops and bottom are close, which make Bitcoin become more stable...

Yeah since Bitcoin has a very well known 4 year market cycle and clear bull runs and bear markets in the four year cycle, it is easy to DCA extra during the lower part of the cycle and then save up fiat during the high part in order to DCA extra when the low part of the cycle comes back. That's my strategy from here on out. It's still DCA, but using the most basic knowledge about Bitcoin's market cycles to get a much improved DCA over a typical steady buying DCA strategy. For example, I've been DCA'ing recently in the $60,000s and low $70,000s, but probably won't do any more from this point onward this bull run. I'll wait until prices get back under $80k next bear market to resume DCA around bottom of the next bear market, and then I'll continue doing it until price passes whatever the high ends up being this cycle. There really is no reason to DCA during the main part of the bull markets, you're just buying higher than you would be buying if you waited for the bear market. This better strategic DCA of course only works with Bitcoin (and things that follow Bitcoin), as opposed to the stock market where a consistent DCA is best because there is no way to guess when asset prices will be higher or lower than today. Bitcoin following an regular market cycle allows us to easily beat out the typical consistent DCA with a strategic DCA only buying on the lower half of the market cycle. In terms of selling at the top, you COULD do that as well, but then you have the risk of missing the top by a lot and maybe after taxes it wouldn't even be worth it, I dunno thats for each person to decide for themselves. I personally would prefer the super low risk strategy of strategically only DCA during low part of the market cycle and save during the high part of the cycle, while holding everything long term.

Fantastic breakdown! Your analytical approach may prove to be accurate but time will answer this. Some may complain about the "complicated nature" of the breakdown but when the average person is consumed by short form entertainment it's a given. Personal standpoint for this current cycle is that we are below the ATH by a good margin, my guess is that BTC will top out at 67-70K GBP. My theory even though the market is unpredictable is that we cannot possibly have a downtrend in price back to base level due to the recent bear market we just had, I've seen assumptions that this bull run will last into 2025 but November 2024 seems like a more reasonable guess.

If you think the use of DCA is what you can afford to go with, then the best thing is to embrace using such purchasing pattern for your bitcoin accumulation and you could easily get going well with your investment over a long term, this method has been seen as part of the most simplest means everyone can afford to use in making an investment, you have done well in bringing all these together OP, there is more we can also learn extensively using these same pattern from this link. https://dcabtc.com/

Very impressive, it is a pleasure to see your brain working. Indeed it was occasionally hard to understand your process, due to the deepness of analysis. I guess it takes me about 90min to read and understand everything, but it was worth every second. In the end everything was plausible to me and i was not able to find mistakes in your thought process. Just one suggestion for improvement: Instead of switching to gold you could switch to a "betting against beta" portfolio. Choosing Altcoins with lower performance than BTC in the bull and betting against them via Altcoin short BTC long could help you to minimize risks and peak out the bull market. It might also be an approach for entry in the bear market to eliminate the risk of BTC going to zero, but obviously the risk of marketwide altcoinrun is much highter when entering Alts short / BTC long in the Bear market.

Very long read, but I managed to follow through till I could really make meaning of it. Your strategy of Dollar cost averaging according to the circles will be effective for a smart investor with a good knowledge of bitcoins and understanding of the market, a newer investor in bitcoins may not be able to monitor the market properly to know when they should DCA more and pause DCA, so we advise them to just first develop the habit of investing by regular DCA, before they are mature enough to now do DCA more smartly like with this your strategy.

Thanks for you feedback. I added a TL;DR summary. I also agree with you, that DCA is better for most investors. The bulk of my Bitcoin buys were end 2021, which only recently turned green. So I personally unperformed a simple DCA strategy. However during the bear market I continued studying Bitcoin, kept my money off changes, didn't sell and continued to add slightly to my position. For the next cycle I try to improve my setup. Thanks for your compliments, I always enjoy you high quality feedback. If I you would like me dig deeper into a particular point or make my explanation easier to follow, let me know. How would you short? Via a centralized exchange or on Defi-projects in Etherium with Wrapped BTC. I think this would be quite a challenge managing all the margin requirements. Also shorting is difficult. You can loose 100% going long, but you can loose 500% or 1000% going short. So either you short with a stopp loss, forcing you to buy back even higher or you leave enough liquidity to survive the exuberance. Enough spare liquidity means low position size and low potential return. I tried shorting stocks, which ultimately went to zero, but with many spikes in between.

I to answer the question if we can do better, yes we can, by performing a lump sum buy when bitcoin is in a correction. I used to start buying bitcoin in bear markets which I identified as -50% from the top. Everything below 50% was cheap in my view and worth buying and because of this I've managed to get my hands on $20k bitcoin last year. Sure, I could have done better by waiting and buying the bottom, but at that point nobody knew what the bottom was. Going to gold and back is only for people who are willing to risk paying exchange fees, network fees, taxes on their gains. If I were to switch back and forth, every $1k transaction would mean paying $10 in exchange fees and another $20 in network fees, holding my bitcoin on exchanges and exposing myself as a holder... I prefer anonymity of a physical bitcoin exchange, where I do no KYC, pay with cash, don't have to report any gains and the only fee I pay is to the network.

Really impressive breakdown. I am sure this took you days or maybe even weeks to have completed. Many think that those who invest understand all the complexities and technological nature of investing but that is simply not true. Many actually do not know how to analyze the market and only buys when it seems to be going up and sell when it seems to be going down. This really could help a lot of people myself included. Props and keep up the good work!

Let's start with some idea's for possible improvements: 1. Formula y = 5,8323x - 39,296 -> I guess you have done some kind of logarithmic Regression like Trolololo did it once -> therefore i guess the formula will be outdated with the years going and it would be helpful to reference the way of calculations 2. "Cyclical Component of Bitcoin price" graphics -> due to logarithmic timeline it's somehow difficult to assign the peaks/years -> maybe vertical halving-lines or labeling the peaks with year count could help as a guideline 3. Entry Price vs. Trend graphic -> regarding the cloud of blue dots it might be possible to separate dataset into 3-4 parts (coresponding full cycles) and use different colours for the dots and regression lines -> maybe some trend will show up (regarding hight or incline)   4. Finding the Tops -> while i understand the days ahead model itself i find it somehow difficult to switch between two different models for Highs and Lows -> maybe you could use an approach like: y = (5,8323 -1 )x - 39,296 +9,5 for the Highs (numbers roughly estimated, mistaken thinking is very likely) Regarding a switch to an Altcoins/BTC short portfolio it is meant to be a kind of hedge. I guess i would use Kraken CFDs as i am familiar with them. There are about 50+ pairs for margin trading. I would sort out all those Altcoins with a better performance than BTC during the Bull (regarding sharpe or sortino ratio). I would also sort out Alcoins with extreme volatility like Memecoins. Lets say there are 40 Altcoins left which build the portfolio. During the rest of the Bull (and regarding ETFs which only push BTC) it should be likely that these Altcoins do not excessive outperform BTC even in an Altcoin-Run (which could lead to margin call). On the other hand the crash for those Altcoins after the Peak should be much harder in comparison to BTC so you could profit from the crash. Obviously you need collateral on CEX so you are affectet by Counterparty Risk. Also there might be drawbacks regarding privacy and taxes.

Since Dollar cost averaging is a strategy for beginners, and without going into details, beginners will prefers to follow the approach of buying an amount every week or month, and after gaining sufficient experience, will moves on to more complex strategies, so why not create a simple site called advanced DCA that has a simple recommendation indicator for beginners, where the indicator is suggested to either increase the amount of your investments or reduce them, something like the Fear & Greed Index, but it is for advanced DCA, through which there are points on the index that indicate whether you are investing in large amounts or not. Then the strategy will be better because it is intended for beginners, and beginners may not be able to understand the charts you mentioned above.

With ROI, very high, it is attractive enough to DCA Bitcoin. https://casebitcoin.com/ I appreciated your work that is complex and I don't understand all of your charts and math but you did good works to convince newbies that Bitcoin is a good investment choice for them. https://dcabtc.com/

Very good thread I would have missed if there wasn't a post in a well known German thread. I should frequent this subforum more In general terms I agree with most of your points, and I think even newbies can come to the simple conclusion that you can almost safely "catch the falling knife" (in an intelligent way, like the described DCA-based strategy, not going all-in at once!) if the price has fallen low enough from the last top. This is always what baffles me: Many people wait way too long to buy when the bear market reaches its end, waiting for even lower and lower lows, but then they return when the bull market is already fully in force (this was the case when $32.000 was passed in late 2023 - those going in at this point missed more than 100% profit!) . Such strategies becoming more popular would also increase the stability and confidence in Bitcoin in general, the bear markets would be less deep and progressively cause less fear which is a virtuous cycle. I have only one thing to add: One could perhaps improve the model trying to spot anomalies caused by external effects. This is based on the theory that the long-term price trend is generally based on an "adoption" curve and has thus "fundamental" reasons, but there can be some temporary effects in place, which seem to change the trend but in reality are only temporary increases of either demand or supply. The best example was the crash in March 2020 due to the Coronavirus crisis. But there are of course also more gradual and longer-lasting effects, like the influence of the interest rate in major markets like the US and Europe. I believe that for example in 2019-2021 the bull market could have started earlier in full force and have been stronger if the Corona crisis didn't materialize, and the May 2021 top possibly was "lower than normal" for the effect caused by the China mining ban, late Coronavirus crisis effects and the start of the inflation increase in the US and Europe. On the other hand, the El Salvador Bitcoin law could have led to an anomalous second top in late 2021, which was not seen in most other coins. If the market had developed like in previous cycles, without this "positive black swan", then the late 2021 top would perhaps only be at 60% of the May 2021 top. How to include that into a mathematical model? One could add a kind of "positive/negative general market sentiment bonus" to the figures. This bonus would take into account the situation in high-risk markets (mainly stock markets in US, Europe, India and other relevant countries) but also very relevant Bitcoin- or crypto-specific news and add or subtract this number from the expected tops or bottoms.

Interesting approach. What kind of sentiment analysis you have in mind? Do you know some good "pure sentiment" indicators? The first sentiment indicator i had in mind was the fear and greed Index, but as it has a lot TA in it (volatility, momentum, volume, dominance) i am not sure if it is suitable, it could depend more on chart history than predicting it.

First, I don't know if "sentiment" is the correct word, because "sentiment"-based indices like Greed & Fear are partly based on the price evolution itself. Perhaps one could call this indicator "general market situation". Or simply "External effects influence". I'd thought about a simple "bucket list" of items you can assign a value and apply it to the general "trend index". For example: - Interest rates in a significant part of the most markets (North America, Europe, India, China) more than 1.5 percentual points above the 20-year average -->  -10% - " " more than 1.5 percentual points below the 20-year average --> +10% - same for world economic growth rate (this would explain the Covid anomaly) - Regulatory/political event affecting demand negatively in a significant part of the Bitcoin market (e.g. trading/mining ban in China) -> -5% to -20% depending on the size of the market affected and so on. - Regulatory/polical event of high impact in a smaller market, but first of its kind (example: El Salvador's acceptance as legal tender) +/- 10% The good thing is that such indicators are hard enough be tested with past market data. I would limit them to important events. For example, El Salvador's Bitcoin law would be an item I'd include, but the Central African Republic's short-lived Bitcoin law not as it wasn't the first of its kind and its impact was also low. It would be of course object of debate which "hard" indicators determine what to include, but that's a challenge for any of such indices.

Hmm. While I agree, that those items mentioned have major impact, i am not a friend of that "bucket list" idea. As it is easy to add items it is likely that you get an overfitted model in the end. And when that model does not fit the future prices anymore it is likewise easy to say, that is because another item that is not on the list and has to be added. Even if you had something different in mind, i dont have a clue how you want to prevent that risk?! On the other hand you could also argue, that all those items mentioned (an much more major and minor impacts) were already priced in and therefore part of chart history. Additionally you don't have to discuss weighting of the list items, as market has already decided for you. In the end you come back to a (mathematical) model based on chart history as it keeps things more simple. To my mind it is fine if you keep flexibility and don't get a 100% fit with past price history. Such a high fit is often only possible with a very small number of target points (e.g. only highs or lows instead of 1D closing prices) and would suggest an accuracy which is unrealistic for future "prediction".

I agree that historical analysis cannot be considered a sufficient basis for building future forecasts, but still it is necessary to rely on it, because retrospective image gives an idea of what was already possible for the crypto market, and therefore - can be possible again. It also makes it real to draw analogies with those new events that have taken place and what their impact on the price may be.

Obviously an exact price prediction is impossible. What virginorange instead pretends (if I interpret correctly) is to find general guidelines for retail investors to know when it's a good time to increase the position in Bitcoin, and when it's better to decrease it, not an exact moment when to buy or sell (which would be impossible). The idea is basically to not ignore these "external" factors. Everybody interested in this model can vary his own bucket list and add or remove items - different traders will always process information differently (at least if they're not using the same trading bot or so ) and thus concede some factors more and others less weight. It would be interesting to create a software tool to be able to contrast such variables with the past price data, being able to adjust the weights of each factor. This tool could then be used in combination with virginorange's general model. The problem is that if you base a model on a chart history which was partly influenced by external factors, you may get a distorted model. The most significant example would be the "underperforming" 2021 bull run. In my opinion without Covid and the begin of inflation growth later that year, the bull run could have been stronger and already reached or approached $100.000 in that year. That was expected by many Bitcoiners that time. The theory about an "underperformance" of course is only an assumption, like everything we discuss in these sections. But this "underperforming" bull run could lead that in the current bull run (and the next ones, if there are any left ) you may sell too early because the model considered 2021's "underperforming" run part of a general trend where highs tend to be lower. I don't dispute here that the volatility to the upside is probably decreasing, but from my impression particularly the last stretch of 2021 bull (November high was less than 10% above the May high) was quite weak compared with earlier bulls. Fully agree here.

Your opinion about DCA strategies is very reasonable and a good example of investment. DCAing in the bear market is limited and the tendency to increase in the upper market is promising. Bubbles are constantly entering the market, even in a bull market. I've covered long-term moving averages in the past on DCAing. But I didn't think like you. As this analytical thinking opens new windows for market trending