Warren Buffett wants to say to young investors: the average dollar value in major stock market indices. However, the data shows that the same strategy has also worked well for bitcoin (BTC) over the past decade.
The term “average dollar value,” or DCA, refers to a strategy where an investor divides the total amount to be invested in periodically buying a particular asset. The theory behind this investment strategy is that when an asset rises or falls, investors can benefit from limiting the negative effect of price volatility.
Buffett has always been optimistic about the average value of the dollar in stock market indices. In particular, Oracle Omaha likes the S&P 500 index fund and the average dollar value of the index.
But the data shows that the same strategy has proven to be effective for bitcoin in recent years. For five years of the last decade, Bitcoin has recorded 100% gains annually. In addition, 98% of Bitcoin games are currently profitable.
History shows that the average dollar value is a bitcoin business.
For example, if the average investor has spent $ 100 in Bitcoin since January 2014 and spent a total of $ 35,700, they will return 1648%, or about $ 589,000.
An example of DCA execution. Source: Bitcoindollarcostaverage.com
Additionally, Bitcoin was priced at $ 11,744 on Binance on August 6. At the time, researchers at CoinMetrics stated that if the average value of a dollar investor in BTC is $ 20,000, it will return 61.7%. They wrote:
“Although #Bitcoin is still trading 30% less than ATH, the average dollar value since its peak in December 2017 would have been 61.8%, or 20.1% per year.”
Since then, the bitcoin price has risen from $ 11,744 to $ 13,840, up 17.9% in three months. The average investor return, whose average dollar value in BTC since peaking at $ 20,000, is now much higher.
There are several reasons why investing in Bitcoin has been successful over a long period of time, regardless of price volatility. Among other things, Bitcoin is a growing store with little value compared to gold.
By 2020, institutional demand for Bitcoin has grown significantly. BTC is compelling for organizations because it is a hedge and a potential investment that can simultaneously provide exponential growth.
The average dollar value of bitcoins has worked because BTC may have major corrective stages. But in a boom, when infrastructure and foundations are dramatically improving and institutional frenzy occurs, their value can quickly rise.
For example, in March 2020, the price of bitcoin suddenly dropped to $ 3,600 compared to the major exchanges. As of November 1, the price of BTC exceeded $ 13,800, which has more than tripled since then.
Most BTC addresses are very profitable
Glassnode analysts found that 98% of all Bitcoin addresses are profitable. They found this statistic by analyzing when BTC first entered the header and estimating the price at which BTC was purchased. They explained:
“98% of all #Bitcoin UTXOs are currently in profit. A level not seen since December 2017 and usually in previous Bitcoin bull dollar markets. ”
With an asset that has the potential to grow exponentially, high-risk strategies can be difficult to manage. Thus, calculating the average dollar value is a convenient and efficient way to process BTC.