The weighted average cost of bitcoins bought has recently reached a level that means all investors who have consistently converted dollar costs into bitcoin (BTC) are now in the black, regardless of how long they’ve been holding them.
This news comes even as Bitcoin’s price, measured in US dollars, is still over 50% below its all-time high of around US$69,000.
And yet, many financial experts in the field still cling to the notion that Bitcoin’s very existence and its nearly $600 billion market cap are based on some sort of Ponzi scheme. Others continue to deny that saving in the hardest form of money ever has been an excellent investment thesis – one that has outperformed all others.
Yes, there can be risks. And yes, volatility is definitely one of them. However, looking at such factors in a vacuum is not enough to adequately analyze an investment. The alternative strategies available need to be considered along with other variables such as:
- What is the current macro environment and how might it change going forward? What impact could this have on different asset classes and their performance?
- What is the risk/reward ratio of one strategy compared to others?
- Can diversification lead to an optimized risk-reward profile, or does YOLO’s all-in offer better returns?
These are just a few possible questions that might be worth investigating when it comes to allegations against the long-term averaging of dollar costs into BTC.
Let’s look at some data that can help shed light on all of this.
Bitcoin outperforms traditional investments
Some investors, like those at Adamant Research, have been pointing to Bitcoin’s most favorable risk-reward ratio for many years:
“We contend that the long-term risk/reward ratio for bitcoin is currently the cheapest of any liquid investment on the planet.” We expect it to trade in a range of $3,000 to $6,500. After that, we see the emergence of a new bull market.”
The company made similar statements during the bear markets of 2015 and 2011.
How has a standard 60/40 portfolio fared over the past 5 years? what about gold property?
The chart below illustrates quite well the relative performance of several currencies and asset classes versus BTC:
Needless to say, when comparing the performance of the DCA strategy in Bitcoin to literally any other asset, there is little comparison.
To diversify or not?
Traditional money managers tend to stick to certain rules. One of them is the idea of realignment. If a particular asset outperforms, the gains should be taken from that mindset and distributed elsewhere.
It can be viewed as a form of “diversification on the go,” if you will. But whether it’s about diversifying right from the start when building a portfolio or over time, how does such a strategy compare to an all-in attack on what has historically been considered one of the riskiest and most speculative assets of all time is applicable?
The answer is simple: This would mean “selling the winner to buy the losers,” as Michael Saylor put it.
On a 5-year basis, BTC/USD is up 376%. Compare that to about 55% for the S&P 500 or gold.
5 year chart of BTC, SPY and Gold. Source: TradingView
Taking profits from Bitcoin at any point and investing them in other assets would have decimated a portfolio’s potential. Dividend income isn’t an offset, except for those working with multimillion-dollar portfolios. And even then, the potential returns would be dwarfed by the capital gains from holding a large Bitcoin position.
While the concept of ‘risk’ often implies volatility and potential downside risk, what about risk of ‘playing it safe’? Don’t investors have to worry that their portfolios might struggle to keep up with inflation?
Related: CPI meets low BTC supply – 5 things to know about Bitcoin this week
Macro trends to consider
Proponents of Bitcoin and the DCA strategy have long claimed that BTC represents the ultimate hedge against monetary inflation and general uncertainty in financial markets.
Despite the critics’ best efforts to destroy this narrative, it has prevailed.
Evidence of this is the bank failures of 2023 and the resulting Bitcoin rally. While in 2022 the adage “So much for an inflation hedge” became popular as BTC plummeted from its all-time high, in 2023 that idea seemed oddly to fall by the wayside.
BTC/USD YTD chart. The vertical line indicates the day of Silvergate’s collapse. Source: TradingView
When it comes to printing money, there is perhaps no more well-known crypto meme than “Money Printer Go Brrr”.
A major reason for the meme’s success was the truth behind it: M2 money supply growth has been highly correlated with the price of BTC/USD since its inception.
While the money supply and velocity of money have been trending downwards lately, there is little reason to believe that the magic money printer is gone. More likely it’s just dormant for a while.
Slow and steady wins the race
For many bitcoin and crypto cynics, no amount of evidence will change their beliefs. Once a pyramid scheme, always a pyramid scheme in their opinion. But Hodlers have taken the orange pill and partaken in the truth while reaping just rewards.
While they can invite others to join the cause, no one can impose a worldview on another. Even if this view has long since become a matter of course.
BTC is up 87% year-to-date. Still, the price remains 44% below the all-time high of $69,000. The next halving is less than a year away and is expected for May 2024.
Due to this event and the prospect of increasing institutional acceptance in the immediate future, it is widely expected that Bitcoin price could reach six figures and beyond this cycle.
This article does not contain any investment advice or recommendations. Every investment and trading activity involves risk and readers should do their own research in making their decision.
This article is provided for general informational purposes and is not intended and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.
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