Missed the Bitcoin Rally? Heres an Investment Strategy to Ride the Bull Market While Reducing Your Risk

Wednesday 02 December 2020, 6:57 AM AEST - 1 month ago

When riding a bull market it helps to have safety padding.

Bitcoin has come a long way since bottoming out below $4,000 in March. The cryptocurrency clocked a record high above $19,900 early Tuesday and is up nearly 170% this year.

While institutional participation has increased, a large part of the retail crowd may have stayed away from the market. For that group, the fear of missing out (FOMO) on the opportunity to make triple-digit gains may have set in over the past few weeks.

Yet, investing now while the cryptocurrency is trading near lifetime highs may seem risky because there is always a possibility of significant price pullback. Bitcoin has seen several pullbacks of over 20% during the previous bull markets.

As such, investors looking to buy bitcoin (BTC, -2.08%) now should consider implementing a dollar-cost averaging (DCA) strategy, according to leading traders in the cryptocurrency space.

It is a good way to build exposure to both bitcoin as well as other asset classes such as global equity indices, as both look set to perform well against a backdrop of negative real rates for the next few years, Scott Weatherill, chief dealer at the over-the-counter liquidity provider B2C2 Japan, told CoinDesk.

DCA, also known as the constant dollar plan, involves buying smaller amounts of an asset at regular intervals, regardless of price gyrations, instead of investing the entire amount at one time. The strategy helps investors take the emotion out of their trades and can result in a lower average purchase cost because markets seldom move higher without pullbacks.

Dollar-cost averaging in bitcoin has historically been a very profitable strategy that lowers drawdown risk, Weatherill said.

To illustrate, lets say an investor has been accumulating $100 worth of bitcoin at the highest price observed on the 17th of every month, starting from Dec. 17, 2017, when bitcoin peaked at $19,783. As of press time, that investor would own roughly 0.48 BTC at an average cost of around $8,660. It also means the investor would be making a nearly 120 ...

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