In the last article I talked about cryptocurrency market cycles and some of the ways to capitalize on movements of Bitcoin vs altcoins. This article will detail a more simple and effective way of investment called dollar cost averaging (DCA) or commonly referred among crypto enthusiasts as “stacking Sats”.
Dollar Cost Averaging
Dollar Cost Averaging (DCA) is a method when investor is purchasing an asset at periodic intervals for a set dollar amount. Regardless of the price of this asset an investor would buy a small amount every two weeks or every month and accumulate more and more amounts of that asset over time.
As example, according to DCA strategy I would be buying Bitcoin every paycheck for $250 regardless of Bitcoin price. Because every single Bitcoin can be divided onto a 100 million parts called Sats (short for Satoshis) it is easy to purchase only $250 of it. At $10,000 per Bitcoin $250 purchase would give you 2,500,000 Sats. So, the term stacking Sats refers to periodic acquisition of small amounts of Bitcoin.
A disciplined purchase of $250 per paycheck (assuming bi-weekly payroll) for the last year would have resulted in $7,961 in Bitcoin (only $6,750 invested). While methodically executing this strategy over the last 2 years would have resulted in a $20,280 nest egg (only $13,250 invested). I like the visual calculator on this website that shows different models for DCA investing in Bitcoin.
This way of investment removes a worry about price fluctuations and simply bets on Bitcoin longer term continuous price appreciation against fiat currencies or any other assets.
Mixing DCA and Market Cycles
Markets move in cycles and Bitcoin is no exception. As covered in the Market Cycle analysis we can see that at certain times Bitcoin investment is more advantageous vs investing in gold or stocks. So, for those with a steady paycheck flow a good strategy could be to mix the DCA stacking Sats during the market declines and early rise while potentially selling portions of their holdings at or near the market tops.
The next Bitcoin market top is predicted to be roughly end of 2021 or beginning of 2022. Different analysts are predicting different Bitcoin tops during this market cycle, but an average prediction is somewhere in the neighborhood of $150,000 – $250,000 per Bitcoin.
So, for someone trying to time the market combined with DCA strategy, they would be buying BTC at periodic intervals until we start approaching what you predict of being this cycle top. Depending on your situation, you can start selling portions of your BTC as we cruise towards the top. Proceeds of your sales you could use for a vacation, purchase a different income producing asset, or simply keep it in USD. This would also be more advantageous for your capital gain taxation as it would probably result in most of your sells occurring at least a year later resulting in a long term capital gains tax which is generally smaller than your ordinary income tax.
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As usual, none my articles or charts here constitute a financial advice. You and only you are responsible for your financial decisions.