Bitcoin (BTC) analyst and creator of the hugely popular stock-to-flow (S2F) model, PlanB (@100trillionUSD), has published a chart showing the potential returns of dollar-cost averaging (DCA) over three years.
As an investment strategy, DCA involves investing an average amount in an asset over a regular interval to offset the impact of volatility on its spot price.
Tweeting on Wednesday, PlanB showed that a trader who used DCA to enter into BTC positions during 2017, then HODL in 2018, and finally, DCA out in 2019 would have earned an impressive yield of around 70%.
IMO investors cannot ignore this. If you dollar cost average into #bitcoin for 12 months, then wait 12 months, and then DCA out 12 months, this chart shows your return (investment=1). So DCA in 2017, wait 2018, DCA out 2019 yields 1.7 or +70% return.
68% >2 pic.twitter.com/ammCATAaVp
— PlanB (@100trillionUSD) June 3, 2020
Indeed, since 2014, PlanB’s chart shows that returns from a three-year DCA investment strategy would generate a 2x yield more than half of the time.
According to PlanB’s figures, the odds of earning at least a 200% return from the 3-year DCA schedule stands at 68%, a remarkably higher figure than the 13%, and 19% for returns below 100% and between 100% – 200% respectively.
When asked on Twitter when to step into the trade PlanB responded:
“It doesn’t really matter much because the (historical) odds are 9 to 1 that you earn a positive return.”
DCA is often a preferred investment strategy for assets with wild volatility swings. Data from dcaBTC – a platform that tracks the profitability of Bitcoin DCA – shows that buying $10 in BTC every week ($1,570 in total) over the last three years would put the investor up by 51.4%. And as BeInCrypto has previously shown, about 79% of all Bitcoin in supply is in profit.
DCA, like ‘stacking sats’, does not require the investor to monitor Bitcoin’s daily price swings. It also ensures that a BTC holder can earn the gains that emerge during the ten days in which the cryptocurrency historically generates its best annual performance.