Stop Piggybacking On BTC Pumps
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Stop Piggybacking On BTC Pumps
Let's explore the dangers
đEvery time Bitcoin touches new all time highs, some specific keywords âlike how to buy Bitcoinâ skyrocket in search engines almost instantly.
New money then finds its way to crypto exchanges as huge crowds of newbie investors race to buy Bitcoin and other cryptos.
These investors have one thing in common. They always lose money.
If you look keenly, it takes a relatively short time for the search traffic for Bitcoin related keywords to turn to real crypto purchases and this has a direct influence on the losses.
The logic is simple. If you go all in in any investment without taking time to understand the market, youâre likely to exit early when the inevitable retrace happens.
This has been the status quo in crypto since forever. When a group of newbies enter this market, a majority will end up with half the portfolio they started with.
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From a technical perspective, anyone invested in Bitcoin should be making money.
With prices ranging around $60,000, Bitcoin has outperformed every other asset class over the last decade, with an average annual return of 230% between 2011â21, data shows.
The cumulative gains by BTC over the same period were a heart stopping 20,037,142%. Wait, thatâs over 20 million percent!
Even the Blue Chip large caps, the Nasdaq or even the US bond market combined could not achieve a fraction of BTC gains.
Thatâs why I think it will be a miracle for any other asset class to outpace Bitcoinâs gains during our lifetime.
âĄď¸The Retail Investor
For the first time in history, the retail degen army has been getting the attention we deserve, but that hasnât stopped the deep-pocketed boys and institutional investors from calling us dumb money.
But seriously though, what do you expect when the best a retail trader can do is to piggyback on Bitcoinâs price rally to the next all-time high. Such a dangerous move!
đEver heard of a stop loss hunt? Liquidity hunt? Ah, excellent choice!
For those who donât know, the market veterans are always waiting for the perfect moment to eat retail for lunch.
During a stop loss hunt or a liquidity hunt, whales and institutional traders often target the common structural levels where most retail traders place their stop loss bids.
This mostly happens during those crazy price pumps and it is the major reason why retail traders continue to suffer losses during massive pumps.
âĄď¸A Workaround
Anecdotal evidence shows the average investor lacks the time to learn the complex trading strategies at the disposal of institutional investors.
Most of these strategies involve predicting the market, sometimes with excessively complex technical analysis tools, which other than being difficult to master, can also be very expensive to acquire.
So, if you canât beat them, how do you join them?
The silver bullet here is Dollar Cost Averaging your way into Bitcoin.
âĄď¸DCA at a Glance
Dollar Cost Averaging or simply DCA, is simply investing a steady amount, at a recurring interval which could be weekly, biweekly, monthly, etc.
This is a powerful strategy in wealth building when employed correctly.
By DCAâing, the investor is simply placing a bet that the prices will eventually go up in the long term.
The advantage here is that the strategy allows you to avoid the pitfalls of trying to time the market.
But it calls for an extra level of psychological training to attain the patience required in the market.
I canât think of a more perfect example other than MicroStrategy, which has accumulated 114,042 BTC in less than a year through a well thought DCA strategy.
The company started by buying a lump sum of 21,454 Bitcoins worth around $250 million. This was announced by Michael Saylor, MicroStrategyâs Chief Executive Officer, in August 2020.
Saylor then went on to make another 13 multi-million USD purchases. The most recent purchase was made in June when BTC retraced to 30k.
In total, MicroStrategy has spent $3.16 billion at an average price of $27,713 per bitcoin.
At current prices, their BTC portfolio is worth around $7 billion and that simply means the unrealized gains have more than doubled the starting capital.
Despite being an institutional investor, what Saylor has done clearly shows that DCA works.
âĄď¸Starting Small
The good thing about Dollar Cost Averaging is that it can work for anyone. You donât have to have a million to spend like Michael Saylor.
You could start small, very small actually, with as little as $10, and as long as you continue making repeated purchases, your portfolio will grow and will be worth big bucks eventually.
âĄď¸Wrapping Up
As we have seen, its important for a newbie to consider a proven strategy as opposed to making uncalculated bets that are likely to cost you money.
The key highlights:
You donât have to be a whale or an institutional investor to make life changing money in the crypto markets.
Losing money in crypto is a choice, most of the time
Dollar Cost Averaging is a proven strategy that can help you build wealth in crypto
Read Part 2 of this series on Medium to learn how to implement your DCA strategy sustainably.
Disclaimer
This post is for informational purposes only and should not be interpreted as financial advice. Any purchase of financial products should be done at your own discretion