FOMO, the “fear of missing out” is a common phenomenon within the cryptocurrency community. Its apex in the crypto realm was arguably in December of 2017. You remember it right? Bitcoin price erupts from $7,500 to almost $20,000 in a matter of weeks, and everyone, and I mean EVERYONE was talking about it. Even the mainstream media started paying attention. People couldn’t resist the urge to join in. Suddenly, those who never even heard of bitcoin 6-months prior were looking to invest, allured by the promise of quick cash, high returns, and a seemingly never-ending bull run. ‘Cryptomania’ they called it. People were investing on the basis of their emotion; fear (fear of missing out that is), rather than technical and fundamental analysis- a hallmark of a poor investing strategy. The paradox of the FOMO phenomenon is that the hyped-up frenzy of buyers leads to a further increase in price, which in turn, leads to more FOMO. A self-fulfilling prophecy if you will. Until one day when it all comes crashing down.
If you were one of those who invested at what turned out to be the top, believe us, you are not alone. Timing the market for seasoned and knowledgeable traders is extremely difficult, and for newcomers can be downright next to impossible. In our previous article, we presented an alternative method of investing in bitcoin: dollar-cost averaging.
To recap: dollar-cost averaging is an investment strategy in which an individual invests a fixed amount of money into an asset over regular intervals over a long period of time- in this case, the asset in question is bitcoin. This technique reduces the investor’s exposure to making a one-time lump-sum investment that is poorly timed with regard to bitcoins price, essentially neutralizing the short-term volatility of the market. It also removes the need to time the market; a skill which can take years to master.
In our previous article, we looked at a case study in which an individual invested $100 on the 15th of every month from 2015 to present day. The results: an ROI of 1,114% and an investment gain of $72,464.00 on a mere $6000 investment. No one can deny that these numbers are impressive, yet, some critics may argue that by starting at such a low price for bitcoin in 2015 we have essentially ‘timed the market’. They may contend that our timing was the reason for our high ROI rather than the dollar-cost averaging itself.
Ok, let’s challenge this idea with another case study. This time, our individual in question succumbed to our old friend ‘FOMO’, and bought into the market at bitcoin’s peak- December 2017. Luckily, this individual had bought Blockchain Academics comprehensive bitcoin course, so was empowered to make the sound investment decision to dollar-cost average his purchase rather than going all-in. Thus, he began investing $100 on the 15th of every month from December 2017 to present day.
Even with the very worst timing, using the dollar averaging technique, this individual saw an ROI of 37%, with a total investment of $3000 and an investment gain of $1121. A stark contrast from the 60% loss he would have incurred had he invested the entire $3000 from the get-go. By following this strategy the investor with the very worst timing avoided the catastrophe realized by late buyers in December 2017.
On the surface, the criticism may seem logical, yet dollar-cost averaging has been proven time and time again to return exponential gains on invested capital despite the initial timing of the investor. This is not to say, that a well-timed entry won’t accelerate the realized returns, however, this is by no means a prerequisite for its success. By definition, dollar cost averaging means you will be accumulating more bitcoin at lower price levels, leading to larger returns. Point blank.
Furthermore, this mentality fails to address the fundamental issues with ‘buying the dip.’ Buying the dip only works when you know that a severe decline is coming and you can time it perfectly. A skill, which can take a lifetime to master. Some academics even believe that it is impossible for an individual to time the market. What can be said with certainty is it an extremely difficult endeavor to successfully do so on a consistent basis over the long term. And research has shown that the Buy the Dip strategy underperforms DCA over 70% of the time.
So when is the perfect time to buy you ask? Today. Next month. And then every month thereafter. Despite huge gains made by Bitcoin thus far, the technology remains in its infancy. A simple $100 a month investment strategy could be the difference between financial freedom or lifetime of regret.
To learn more about investing in bitcoin and other cryptocurrencies, visit bcacademics.com.