If a person has lump sum available, such as $1k to get started, and maybe he has an income in which he can buy $100 per week in bitcoin, then with the extra $1k, he does not need to invest through DCA, he could buy right away and/or he could buy at the dip (if the dip happens), so he has choices of the three different styles, and DCA is not always better if you already have a lump sum of cash come available to you. One of the reasons that so many people use DCA is because it is much easier to tailor some kind of a buying amount that goes along with their regular income coming in and their expenses, and so DCA also will allow an adjustment every week or whatever period that a person chooses to buy bitcoin under that kind of an approach/practice.
I like to think that DCA is the best method or strategy in almost every situation, even if a person has lump sum it just depends how disciplined and aggressive the person is with his DCA. Guys need to consider the circumstances in which they come accross the new money.
Let's say that a guy with a $30k per year income had been investing $100 per week for two years, and one day he all of a sudden received some kind of a pay out or an amount of money that added up to around $5k, which is equal to a whole year of his prior DCA amounts.
I think the guy should at least consider all three options, including potentially putting 1/3 (or some other amount that he considers to be reasonable) in each of the categories
It also may differ if the guy is brand new to bitcoin (like ONLY 1 month in) or if the guy had been accumulating for 2 cycles already, so he had already invested around $40k into bitcoin.
Guys account for their situation, and it is up to them how to do it, but they should at least consider all three options.
If a person has $1K and he decides to DCA $200 for five weeks and another with the same amount just lump sums immediately, you’ll find out in the end that the one who DCAed was able to accumulate more than the lump sum even if it’s a bit.
The one who lump sum will do better if the price ends up going up, and the one who DCA'd will end up doing better if the BTC price ended up going down.
Even if the guy has suspicions about the potential BTC price direction, mostly he does not know in advance if the BTC price is going to go up, down or sideways.
I think lump sum is most beneficial in times of dip,
That is not called lump sum. That is called buying the dip.
Sure if you get a lump sum and the BTC price had been dropping for the previous week or two, and you think that the dip is not over, then sure, you could be correct that some advantage comes from buying as the price is dipping, even though the price direction could reverse at any time.
I think that’s the only moment when lump sum is better.
If the BTC price is about to go up, but you don't know it, then lump sum (by buying right away) would be better in those kind of situations.
Assuming the $1K didn’t come available at a time of dip, would it be better to wait ? How long would one have to wait losing valuable time and opportunities he could have accumulated more.
Those are the considerations that have to be attempted to be accounted for right away. You can establish a plan that is based on time and/or based on price, and even back up plans if the primary plan does not seem to be playing out as expected.
And sometimes while waiting for a dip and price moves to an ATH even if there’s a correction after, there’s a possibility the dip might still be high compared to the time you had the sum available and decided to wait.
Look at the chart below ⬇️
Assuming he had the $1K at $100k price value and he was waiting for a dip and price shoots up, you see that the price never comes down again below $100k and now at whatever time he chooses to buy is now high compared to when he first had the money… that’s a huge missed opportunity.
Look at the chart below ⬇️
Assuming he had the $1K at $100k price value and he was waiting for a dip and price shoots up, you see that the price never comes down again below $100k and now at whatever time he chooses to buy is now high compared to when he first had the money… that’s a huge missed opportunity.
He might not consider it a missed opportunity if he had already been buying for two cycles or more.
Surely the shorter time that he has been in, then probably he would be better to error on the side of buying right away, so even in my case of $5k, he might invest $4k right away (like over the space of 1-2 weeks) and then maybe he saves $1k for buying on dips, so then he might have 3 orders of $333 each for every 5% that the BTC price goes down, and with the expectation that he might end up holding parts if not all of the $1k rather than investing it at dip prices that might not end up happening. He ultimately figures out an approach that is based on his own psychology and his finances, but it also depends on how much BTC he had already accumulated (and when and how he made those prior BTC purchases).
DCA is effective in the process of averaging against volatility and putting purchases in an ordinary income stream, however, when you have a lump sum, it may be worthwhile to buy on the downside or buy more actively. It all depends on whether you have an effective plan and with a clear plan, you should not touch on monies that are likely to impact on your necessities. Basically, both strategies can be applied using the same capital, it is primarily a matter of timing, risk-taking, and disciplineness when using discretionary funds.
The discretionary income to be used depends on the level of your comfort and not even about the market environment and If you say buying on a Lump sum is worth while buying on the down side then to me you are describing buying the dip and not buying with the lump sum, because talking about buying with the lump sum has nothing to do with the market conditions but rather an investor decision to buy immediately with the available Lump sum amount irrespective of the market conditions, So, buying the dip and lump sum are not the same thing, it's just that people do their things differently. Some may decide to invest their money once, while others will wait for a dip. But, in the end, it will depends on how the person thinks and the kind of risk they are willing to take.
You sound confused SmartCharpa. Lump sum can refer to the amount received or it can refer to how it is bought, and if you consider to treat the lump sum in terms of 1) buy right away, 2) defer by time (dca) and/or 3) defer by price (buy on dips), then you can pick whatever the fuck amount that you want for each of those categories, and you can even choose the criteria upon which you will execute the buy.
So, let's go back to the $5k example. Let's say that you divide it into 3 equal parts then that is $1,667 per each part.
For the buy right away portion you could even divide that into three parts of $555 every 3 days for the next 9 days. There are all kinds of ways to be creative, and the parts do not need to be divided equally and all of the 3 don't need to be used, even though all three should be at least considered. since you have the option and the power of having an extra $5k that you did not have previously, it is good to consider your options rather than just plug it into one form that might not be as good for you, your finances and/or for your psychology.