Dollar-cost averaging or timing the market: which strategy works best?

With the recent drop in Bitcoins price, a lot of people are questioning what exactly is the best strategy when it comes to investing. Should you buy Bitcoin when it is cheaper or wait for another market sell-off? 


Market timing is the strategy of trying to pick the tops and bottoms based on what you believe of the price in the future, then buying lump sums/ off selling to make returns. Of course, if you get it right you can see some huge returns but with a volatile asset like Bitcoin that has doubled many times in a short period of time, it can be difficult to do. Unless you are a highly skilled trader, timing the market can see you lose out quickly.


Dollar-cost-averaging (DCA) is an investment strategy in which a person divides up the total amount to be invested across periodic purchases in an effort to reduce the impact of volatility on the overall purchase. By purchasing small regular chunks of Bitcoin, with its long-term potential in mind, it becomes less important whether the asset is in the short term going up, down or sideways.

For example, $1 invested into Bitcoin every month after it topped out near $20,000 in December 2017 has given investors a cumulative return of $163, according to CryptoHead’s DCA calculator. That is around a 200% profit from consistent investments.

The Bitcoin DCA strategy also originates from an opinion that BTC’s long-term trend will always remain skewed to the upside. Crypto analyst Carl B. Menger claims that buying Bitcoin regularly for a certain dollar amount could have investors “beat 99.99% of all investment managers and firms on planet Earth.”

If you’re interested to get started with dollar-cost averaging, there are great applications such as Amber that make purchasing Bitcoin simple for the everyday user. Through a mobile app, you can make instant purchases or set up recurring investments. 


Of course, there are benefits to both strategies. So why not implement both?

Chief research officer for Buckingham Wealth Partners, Larry Swedroe, believes people should invest with a “glass is half full” perspective, using a mix of both strategies. He states you should:

“Lay out a schedule with regularly planned investments. The plan might look like one of these alternatives: Invest one-third of the investment immediately and invest the remainder one-third at a time during the next two months or next two quarters. Invest one-quarter today and invest the remainder spread equally over the next three quarters. Invest one-sixth each month for six months or every other month.”


Certainly, you should only ever invest what you can afford to lose!


**The information presented above is for educational purposes only and does not constitute specific investment, accounting, legal, or tax advice. You should seek legal advice or other professional advice in relation to any particular matters you or your organisation may have.