Although the crypto market is down from its highs, dollar-cost averaging still offers long-term profit potential.
Since April 19, when Bitcoin (BTC), was sold, choppy markets have dominated the crypto space. Indecisive markets such as these can be a test of the patience and fortitude even of the most dedicated traders and analysts.
The ideal conditions for whale-sized traders are periods of low trading volume, whipsaw price movements, and the right amount of liquidity. However, this doesn’t mean that the average investor has any chance with multimillion-dollar funds starting to get in on the action.
Data suggests that dollar-cost-averaging (DCA), instead of day trading or trying to time the market bottom is the best way for retail investors to make long-term profits in traditional and crypto markets.
Coin Metrics reported that in 2020, investors who averaged their dollar cost into BTC starting at the December 2017 peak were still making a profit three years later.
Coin Metrics Tweeted:
“Despite #Bitcoin still trading 30% below its peak in December 2017, dollar cost averaging since Dec 2017 would have returned 61.88% or 20.1% annually.” Similar for #Ethereum, which is still down 71% from its peak, dollar cost averaging starting Jan 2018 would have returned $87.6% or 27.9% annually.
Although the graph may be a bit out of date, it shows that consistent investments over time have resulted in an overall increase to portfolio value.
With BTC falling more than 47% since its high of $64,863 in May, and the market sending mixed signals, now may be the right time to implement the DCA strategy.
It’s not enough to just buy the dip. There are other aspects of investing.
Let’s look at the results from dollar-cost averaging to multiple cryptocurrencies, starting in 2017-2018 and ending in June 2021.
Each analysis will start at the date of the token’s bull market all-time high of $17. Weekly investments of $10 will then be made from that point onward.
According to CoinMarketCap data, the peak in Bitcoin trading during the cycle was Dec. 15, 2017, when BTC traded at $19,497.
CostAVG.com’s DCA estimator shows that $10 invested daily in BTC would result in a 36% increase in its value to $7,519.
Asking the opinion of traditional investors, fund managers and traders would tell you that a 30% increase in portfolio value in four years is an incredible rate of return.
Ether returns a large amount
As a result of the exponential increase in decentralized finance (DeFi), and nonfungible tokens like NFT, the price of Ether ( ETH) has exploded. This has fueled increased demand for Ethereum and the use of the Ethereum smart contracts blockchain.
The rally was fueled by increased demand. Ether reached $4,363 on May 12, 2021. However, its price has fallen almost 50% and trades below $2,200 as of this writing.
The price of Ether reached an all-time record $1,396 in the 2017 bull market. This was on January 12, 2018. The DCA strategy would have required investors to invest $10 per month beginning at the peak and generating a portfolio worth $15,507 at Ether’s current price. This is an increase of 757%.