Bitcoin Dollar Cost Averaging

6/23/2018

Would you believe me if I told you that there's an investment strategy that a 6 year old could understand, will take you 10 minutes of work per year, outperform 90% of finance professionals in the long run, and make you a multi millionaire over time?

Dollar Cost Averaging (DCA) is the discipline of buying a fixed dollar amount of a security or fund on a regular schedule regardless of share price or market direction.  

https://www.investopedia.com/exam-guide/series-7/packaged-securities/dollar-cost-averaging.asp

For the past 10 years of my professional career, I have invested in 3 low expense ratio index funds using DCA. This PDF outlining the DCA strategy changed my life forever:

https://www.etf.com/docs/IfYouCan.pdf

Although, I have been pleased with my more traditional investment plan and will continue to DCA throughout the duration of my career, I was introduced to Bitcoin (BTC) in May of 2017.  

Satoshi Nakamoto invented BTC in 2009, https://bitcoin.org/bitcoin.pdf.  BTC is the worlds first working digital cash that is antifragile.  Furthermore, it is a monetary policy and social network based upon peers who value savings and not debt.  Its value proposition is based upon its scarcity, immutability, and fungibility.  At the same time, BTC is censorship resistant, permissionless, borderless, portable, leaderless, and decentralized.  BTC is the hardest money ever invented: growth in its value cannot possibly increase its supply; it can only make the network more secure and immune to attack. http://data.bitcoinity.org/bitcoin/hashrate/6m?c=m&g=15&t=a

While there were many attempts at a digital cash, e-gold, or e-cash before BTC, all failed due to the attack vector of centralization.  This fact made those prior attempts at digital cash vulnerable to regulators.  

An often overlooked feature of BTC, but arguably its most important quality is that it cannot be confiscated as long as you hold the private keys.  There are multiple ways one can secure their private keys, however the Trezor https://shop.trezor.io/ is the best in my opinon.

While many have argued endlessly regarding the reasons why Satoshi Nakamoto created BTC, it is undeniable that this was a significant invention for the world of finance.  Many believe Satoshi Nakamoto was inspired to create BTC as the holy grail for Austrian economists: 

http://towardsliberty.com/library/economics/ 

Regardless of your opinion of different economic models, a review of the world debt clocks http://www.usdebtclock.org/world-debt-clock.html leads one to the conclusion that the current central banking practices are unsustainable. 

DCA is an especially attractive way to approach investing in BTC for 3 reasons.

1.  BTC will increase in price

2.  Bitcoin is volatile

3.  Nobody can time the market. 

Buying a fixed dollar amount of BTC both on a regular schedule and within ones budget, regardless of share price or market direction, will make far more successful investors in this volatile but disruptive asset class.  

Many sold the vast majority of their BTC after massive pumps in the price only to regret their decision years later when BTC reached all time highs.  On the other hand,  others purchased BTC in amounts well beyond their budget just before a bear market and then capitulated leading to massive loses. 

DCA will smooth out the volatility and allow you to capture all of the dips, while still maintaining a balance to enjoy the massive gains.  This assumes you have a low time preference and can HODL for a significant amount of time.  

Buying $100 USD of BTC each week with the cash app https://cash.me/bitcoin and transferring your BTC to a Trezor hardware wallet takes only seconds.  Could you find $100 each week that may change your entire life in 10 years?

What is the potential upside of DCA for BTC? 

Had I started investing $100 USD of BTC per week over the same time frame as my low cost index fund investments, I would now have over $150 million USD from only a $40,000 investment.  This represents a 3000x ROI!  More importantly I would also have over 25,000 BTC.  Check out the website below to see how you might have done by investing in this over the past 9 years. 

https://for-bitcoin.com/calculator/?amount=100&freq=week&month=August&day=08&year=2010

While past performance is no guarantee of future returns, consider the fact that BTC is so scarce that not even every millionaire can own their own BTC.  Satoshi programmed BTC so that there can only be 21 million BTC. However, over 4 million BTC have been lost, destroyed, or the private keys are missing, leaving only approximately 17 million BTC that will be ever be available in the future.  In addition, many millionaires have already purchased more than an entire BTC and have no intention to sell until well into the future.  http://www.thehalvening.com/#1 .  

As other sovereign individuals, cypherpunks,  libertarians, investors, and high net worth individuals determine that they want to take the red pill, the price will be determined by pure supply and demand Austrian economics.

For all of the above reasons, it is my hypothesis that BTC offers an asymmetrical investment opportunity that is going to outperform my current traditional investment portfolio using a significantly smaller capital investment. 

In conclusion, from the moment I first purchased my first fraction of a BTC over a year ago, I have learned more about mathematics, computer science, programming, finance, and economics than I ever would have otherwise.  My prediction is that BTC will continue to capture the imaginations of people all over the world with the energy of a black hole.  The force of this black hole will pull ever harder with each economic crisis that is created by those who value Keynesian economics. 

To gain a better understanding of  Bitcoin (BTC), I would recommend reading "The Bitcoin Standard" by Saifedean Ammous:

https://www.amazon.com/s/?ie=UTF8&keywords=the+bitcoin+standard&tag=googhydr-20&index=aps&hvadid=241658794964&hvpos=1t1&hvnetw=g&hvrand=15836616637571782739&hvpone=&hvptwo=&hvqmt=e&hvdev=c&hvdvcmdl=&hvlocint=&hvlocphy=9022196&hvtargid=kwd-380765199490&ref=pd_sl_5qpegdfty3_e_p38

If you would like to learn more of if you have any questions please contact me via Twitter https://twitter.com/search?src=typd&q=%40BTCDCA 

Disclosure:    This material is not financial advice.  The author owns Bitcoin and Vanguard index funds. This article is my opinion only.   I am not paid by any of the products listed above. Don't invest any amount of money that you cannot afford to lose.