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Re: "Lump sum Vs DCA" for Bitcoin Accumulation
by
Darker45
on 21/10/2023, 01:14:12 UTC
⭐ Merited by JayJuanGee (1)
Quote from: DabsPoorVersion on October 20, 2023, 08:56:29 AM
Quote from: Darker45 on October 20, 2023, 03:47:32 AM
Quote from: snowpega on October 19, 2023, 02:10:15 PM
~snip~

Let's not underestimate lump-sum buying too much. Let's not go down the road connoting that DCA is wise, right, recommended, and so on and lump-sum is wrong and all the opposites. Yes, we cannot have perfect timing, but resources are available. You can study and analyze Bitcoin's movements and tendencies perusing all kinds of Bitcoin charts and tools. From there, you can set a price or a price range for your lump-sum purchases.

Take note that lump-sum doesn't necessarily mean one-time purchase. You can buy right now with most of your money and set aside the remainder in case Bitcoin drops back to $20,000 or below. Or you can divide your money into 3 parts and use 1 part to buy today, keep the other 2 in case Bitcoin drops, but if the price rises instead, use 1 part to buy at $30,000. The other one is reserved for the worst case scenario. This isn't strictly the DCA that everybody is talking about, but I think this is also a good approach.
It is still a DCA.
"You can buy right now with most of your money and set aside the remainder" - means that you just made an initial investment, and you still reserved some money for your next investment in case the price of Bitcoin drops. The fact that an investment was made/planned to be done in a different timeframe, you can't treat it as a lump sum anymore.

We really can't deny that the wisest strategy to accumulate Bitcoin is DCA. By regularly investing, gives the advantage of reducing the effect of volatility during our accumulation of Bitcoin. Also, if ever the price of Bitcoin suddenly drops, you won't be thinking of whether you will buy or not, because you already planned on regularly purchasing Bitcoin.

It is not DCA.

So what if there's a reserved money in case the price of Bitcoin drops? Does it automatically mean I'm involved in DCA? Of course, not. Again, lump-sum buying doesn't mean one-time purchase. If that's what you mean, then everybody is into DCA because I'm sure everybody has purchased Bitcoin more than once. But DCA doesn't just mean buying Bitcoin 2 times or more.

In the first place, if you speculate on the possible future movements of Bitcoin and do the buying according to that, you're not into DCA. If you're buying according to the price, you're not doing DCA.

Here are at least 3 definitions of DCA:

  • Bitpay- "In the traditional finance world, dollar-cost averaging (DCA) is a time-honored investment strategy that involves purchasing set amounts of stock at regular intervals, whether the price is high or low." "Dollar-cost averaging (DCA) means making smaller, equal investments on an ongoing basis, instead of making large or irregular crypto buys."[1]
  • Coinbase- "DCA is a long-term strategy, where an investor regularly buys smaller amounts of an asset over a period of time, no matter the price (for example, investing $100 in Bitcoin every month for a year, instead of $1,200 at once)."[2]
  • Cointelegraph- "In the case of DCA, it’s initially about investing a certain amount of money in a predefined asset and at a fixed time."[3]

[1] https://bitpay.com/blog/dollar-cost-averaging-crypto/
[2] https://www.coinbase.com/learn/tips-and-tutorials/dollar-cost-averaging
[3] https://cointelegraph.com/news/what-is-dollar-cost-averaging-dca-and-how-does-it-work