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Too late to buy bitcoin? Not if you use rand cost averaging

This strategy has yielded nearly 50% over three years.
The advantage of having this as your game plan is that you don’t have to worry about timing the market. Image: Luke MacGregor, Bloomberg

With bitcoin surging through $15 000 in the last week, many investors are wondering whether it is too late to jump on board.

Those who bought in late 2017 at prices close to $20 000 are still roughly 27% in the red, and had to sit through a collapse in price of 84% before bitcoin commenced its climb back up to current prices.

This kind of volatility has spooked many investors away from bitcoin.

Rand cost averaging is a way to accumulate bitcoin over time by making regular purchases, either weekly or monthly.

It has the advantage of reducing the risks associated with severe price fluctuations.

Had you done this since January 2018, the overall return would have been 48% – despite the 84% drop in price between December 2017 and November 2018.

Read:

The chart below shows the bitcoin price since December 2017. After peaking at close to $20 000 in December 2017, the price fell to about $3 200 by late 2018.

Source: TradingView

Investing an amount of R100 a month would have been a losing cause until the price rebounded to $11 000 by late 2019. Thereafter, new investments added to the profitability of the strategy.

‘Buy low and sell high’ is a tried-and-tested strategy for traders, but this involves trying to time the market – an inherently risky strategy. Very few traders get it consistently right. Given bitcoin’s volatility, this strategy could backfire.

The next chart shows what would have happened with rand cost averaging at the rate of R100 a month since November 2017. The total capital invested over the three-year period was R3 600, which had grown to a net capital value of R5 341.

Source: dcaBTC.com

Rand cost averaging has its drawbacks: for example, an opportunity to buy when prices drop dramatically. Bitcoin has a tendency to reverse direction after a sharp move either up or down. Traders will pick up these opportunities. Rand cost averaging will tend to miss these moves.

Read: Bitcoin on the brink of fresh year high following PayPal embrace

The big advantage of rand cost averaging is that it is a way for those new to bitcoin to make a start without having to time the market. Another advantage of this strategy is that it does not require any technical understanding of bitcoin, nor having to follow the constant flow of news that might move the price.

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Sounds like a hawker at a carnival.

There is a fiat party , big bash-up and nooobody knows how it will end ( except the banksters who get their hands on the lucre first–that is the essence of MMT) Hedge your bets, some gold , some oil(old man oil just waiting in the wings, even Sasol), some or even a bit more bitcoin(asymmetric bet on the future and fiat melt-down) It is a bit like Hotel California…once you check in you can never leave….or cant you? That is their(mafia-state/private banking sector consortium) biggest fear…that their walls ha ve been breached electronically, in cyberspace and just about anonymously once btc is in the mix

Kadaffi tried to circumvent the dollar as a means of exchange for his oil sales. Kadaffi was seen as a mad man, to be ignored, until he started to implement his dream of the African currency, the Gold Dinar. Kadaffi sold his oil for gold, not for dollars. Sadam Hussein was an ally of the USA until he made a deal with the French government to exchange oil for euro, bypassing the petro-dollar system. Neither of them survives to execute their ideas. The enforcement of legal tender laws cost these men their lives.

If the men in control of the mightiest military force in the world are willing to wage war to force foreign nations to use their fiat currency, do you honestly believe they will allow cryptocurrencies to become competition for the dollar?

The success of cryptocurrencies is the biggest threat to the success of cryptocurrencies. Fiat currencies are money by decree. The state enforces legal tender laws with its monopoly on violence. Crypto will trade as a commodity, never as a currency.

Muammar Muhammad Abu Minyar al-Gaddafi, commonly known as Colonel Gaddafi, was a Libyan revolutionary, politician and political theorist. Sorry for the typo.

I’m wondering how likely it is that China adopts a digital currency for the Yuan and thereby challenges the USD. It seems a few articles keep popping up regarding this possibility.

When it happens, I have no idea where I want to be located, but it seems there are a few places I wouldn’t want to be.

Further to that, reminds me of Jannie Mouton (PSG) recollections. according to him, he had bought a share too high and with the share in free fall, he asked a distinguished fellow broker, an elderly jewish gentleman, if it wouldn’t pay to buy more so as to average out.
The gentleman’s answer was, ‘my boy, averaging out has killed more of my brethren than the fuehrer.

not a good time to buy now – massive profit taking will happen in the near future. there’s no way that BTC fundamentals justify the current price. Yes it may go to $25k but it is still overvalued. Wait for the next dump to $5k and then buy.

Michael Saylors and Paul Tudor Jones investment has each yeilded in excess of $0.5 Billion profit. Drunkenmiller even tapering his gold position. Do what the rich do, not what they say.

The future is coming, well of course it is, anyway with low/no/negative interest rates, anything other than cash looks good, or appears to have more potential. BTC is becoming more like a collectors item, everyone has to have one, then there’s the peeps on the side who realize that this is trade – profit – worthy and have also got in on the act.

So many naysayers for Bitcoin but we just smile;
They think 7800% over 5 years and counting does not warrant the risk.

Good point Myricals 🙂

The current price of BTC….would you say it’s near its shortiterm peak or near a long-term trough? How do I calculate (or estimate) whether a crypto is over or under-valued?

BTC price predictions at say 6 months ahead, say mid-April 2020?

This exciting crypto stuff I’ll leave to the experts.

Bitcoin has just started. It is a minuscule $297bn market cap.

This year so far we have seen a number of billionaires enter the crypto market and a number of big corp; PayPal, JP Morgan and a host of listed funds with over $13bn invested directly into Bitcoin holding.

What we have not seen is the retail market i.e. no mass adoption yet.

Predicting where price will go is not our game. We just know that demand will continue to increase and new supply will continue to decrease. Any asset with such credentials is destined to go higher.

We believe Bitcoin market cap will ultimately go into the trillions of dollars.

Who knows? Can just as well ask: what will the USD/ZAR be 2022 Or what will the POG be June 2021 The most knowledgable economists cant foresee what will happen in 1 year but they are damn experts in predicting the past. How will the endgame of MMT play out? Is Americas debt sustainable ( yes, in the short course of history, like Sensei says, the mafia-states military might will protect the USD) But what happens if the levee breaks…..or wont it? My bet is it will. Covid stresses 1 thing above all: how vulnerable the world is to disruption from the left field, the blind spot. We will see

It’s just going to keep going up right?

It will be a massive roller coaster ride with 40% down one moment, 50% up the next. Most don’t have the stomach for it.

Whether it will continue upward trend or not? Don’t care…every cent in BTC is pure profit for us as we have extracted over 500% of our initial capital investment in just 4 years.

Sounds awesome. What determines whether its value increases or decreases?

A bit of core fundamentals, a bit of demand/supply and a whole lot of emotion.

Fundamentals & demand/supply account for long term growth.
Emotion accounts for the extreme volatility.

Who knows what the value of it is? There are shares trading at huge bn USD market caps that have little or even no revenue. But in these markets, definitely things can stay irrational longer than you can stay solvent.

Other than that, BTC doesn’t seem the worst investment idea.

I bought bitcoin just before the $20,000 peak (about 2-3 years ago) and lost about 70% in value soon after it “crashed”. However. I kept invested and bought smaller amounts at the lows and have recovered my losses. I do belief in its potential, learned not to stress when it suddenly dips and I have stayed invested as I do think it will still rise significantly in price. I do think most people should invest a portion into bitcoin based on a thorough understanding their individual scope for taking risk.

Well done for staying the course.

Many of the detractors are those that sold after the crash and still refuse to take responsibility for their own actions.

If you want to get a sense of the potential value of BTC, check out Raoul Pal, a former hedge fund manager and macro investor.

He lays out a compelling thesis based on stock to flow and a range of other aspects.

Gold has a $11trn market cap and BTC is at $300bn or so. If you are looking LONG TERM and compare the relative qualities of gold v BTC, it is clear that BTC is a far stronger store of value.

Don’t take my word for it. Check out Raoul.

$1m BTC in 10 years is quite conceivable. And if it takes 20 years, I don’t care.

End of comments.

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