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Lessons From MicroStrategy’s $4.5B Bitcoin Dollar-Cost Averaging

3 mins
Updated by Kyle Baird
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In Brief

  • MicroStrategy's $4.5B Bitcoin investment under Michael Saylor's leadership underscores the potential of the Dollar-Cost Averaging (DCA) strategy.
  • DCA involves regular, fixed-amount investments in an asset, reducing exposure to short-term price volatility.
  • While DCA offers several benefits like automation and lower risk, it also has downsides like mild returns and potential higher fees.
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Three years ago, business intelligence behemoth MicroStrategy began a journey into cryptocurrency investing. Under the visionary leadership of Michael Saylor, the company first invested $250 million into Bitcoin, buying 21,454 BTC at an average price of $11,653.

Fast forward to today, MicroStrategy is a colossal institutional holder of Bitcoin with a staggering 152,800 BTC, acquired for an average price of $29,672, representing a whopping $4.53 billion.

The Essence of Dollar-Cost Averaging Bitcoin

Such figures are a testament to the company’s unwavering belief in the digital asset. Interestingly, during this period, the value of MicroStrategy’s stock (MSTR) skyrocketed by over 210%. However, it’s essential to note that this investment journey wasn’t without its turbulence.

The company’s stock has faced a 70% plunge from its three-year high, and there were looming concerns about potential Bitcoin-backed loan margin calls in 2022.

MicroStrategy Stock (MSTR) Price Chart. Source: TradingView
MicroStrategy Stock (MSTR) Price Chart. Source: TradingView

The unpredictability of Bitcoin’s price trajectory makes pinpointing ideal buying times daunting. The inherent volatility can instill emotions of anxiety, excitement, or hesitance. Here, the Dollar-Cost Averaging (DCA) strategy shines. But what exactly is DCA, and how can it benefit investors?

At its core, DCA is an investment technique where an individual allocates a fixed amount of money at regular intervals to purchase an asset, regardless of its price. This method is not foreign to many in the US, as it often underpins 401(k) retirement plans. 

Learn more about Dollar-Cost Averaging in Bitcoin with our guide: What Is Dollar-Cost Averaging (DCA)?

In the context of Bitcoin, instead of buying BTC in one lump sum, an investor might purchase it in smaller quantities over time. This approach minimizes the risks associated with short-term price volatility.

Collective Shift CEO Ben Simpson said,

“Dollar-cost averaging is a boring strategy, BUT it is the most effective strategy to build a large portfolio if you’re starting out with not much.”

The Rationale Behind Dollar-Cost Averaging Bitcoin

Implementing DCA in Bitcoin is an antidote to impulsive decision-making based on market sentiments. By consistently investing over time, one can sidestep the pitfalls of trying to time the market, a challenge even for seasoned investors. 

DCA can ensure a steadily growing Bitcoin position for those committed to a long-term horizon.

“Dollar-cost averaging into great assets with a holding period of forever is a fool proof way of building wealth,” said Anthony Pompliano, founder of Pomp Investments. 

  • Automation: Once set, DCA runs automatically at predetermined intervals, ensuring hassle-free investment growth.
  • Lower Risk: DCA helps mitigate drastic price fluctuation risks by buying at varied price points.
  • Passivity and Simplicity: DCA offers a hands-off approach to investing. With less emphasis on market timing, there’s reduced stress and analysis involved.

The Caveats of DCA

However, DCA isn’t a one-size-fits-all strategy. Potential downsides include:

  • Mild Returns: In evading extreme volatility, DCA might also miss out on potentially higher returns.
  • Capital Inefficiency: The staggered nature of DCA can mean missed opportunities. Immediate investment often yields better returns than delayed, periodic ones.
  • Higher Fees: Smaller, frequent purchases might incur greater fees than lump-sum investments.

For those keen on embarking on the DCA journey, begin by deciding on the total Bitcoin allocation, determine the DCA order’s size and frequency, and select a platform that supports recurring orders.

MicroStrategy’s foray into Bitcoin and its $4.5B investment showcases the potential of the DCA strategy. While the journey of cryptocurrency investments can be tumultuous, strategies like DCA offer a methodical and less emotionally charged approach.

Top crypto platforms in the US | February 2024
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