How often should you buy Bitcoin?

Monday 26 October 2020, 1:40 AM AEST - 1 month ago

Everyone has their own Bitcoin buying strategy. Some look at simple things like a particular drop in price, others look at a host of wonky indicators, while some prefer to keep it simple and keep stacking sats. Which strategy works out to be the best though?

Well, in short, there is no one perfect strategy. But there are many imperfect ones that work well. Lets take a look at a simple one here.

Rules of the game

For starters, this strategy will only look at buying Bitcoin and not selling. Why not selling? Well, given the simple value proposition of Bitcoin being limited and usable, there is no need to devise a strategy to sell because there is inherent value in using Bitcoin as a medium of exchange or a store of value.

Buying, on the other hand, is a complicated affair. Not just from the point of view of regulatory loopholes (depending on where you live), exchanges used, custody solutions, third-party payment solutions, and trading pairs used, but also from the point of view of timing. What does timing imply? Timing simply implies when should we execute the buy, and when should we wait, or not execute it.

To simplify this binary execution of – to buy or not to buy – lets create two specific actions,

  1. Buy and Hodl Bitcoin
  2. Buy USDT

Here, the options are fairly simple. You either buy and hodl Bitcoin, or buy USDT with the intention of buying Bitcoin. So, whichever route you take youd be buying Bitcoin eventually.

Now that we have the action, lets look at the trigger. Whats the trigger? A trigger would be the sign that would make you choose between the first or the second option above i.e. when should we buy and hodl Bitcoin versus when should we buy USDT (to buy Bitcoin)? Lets use a tried and tested strategy for this.

The 200-day moving average (DMA) looks at the average price of Bitcoin over the past 200 days, an effective measure of how the current price has fared against its medium-term past. In a recent report by Ecoinmetrics, the strategy was laid out very we ...

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