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Warren Buffett praises shares for averaging dollar value – but does this work for bitcoin?


Nov 25, 2020 ,

Warren Buffett loves to use the average dollar value in major stock market indexes, but the data shows that the same strategy has worked well for bitcoin buyers as well.

Warren Buffett wants to say to young investors: Average dollar spending on major stock indexes. However, data shows that the same strategy has worked well for bitcoin (BTC) over the past decade.

The term “dollar value averaging” or DCA refers to a strategy where an investor divides the total amount to be invested by the periodic purchases of that asset. The theory behind this investment strategy is that when an asset rises or falls, investors can benefit from both, reducing the negative impact of price volatility.

Buffett has long expressed his optimism about averaging dollar value into stock market indexes. In particular, the “Oracle of Omaha” loves the S&P 500 index funds and the dollar value averaging into the index.

But the data shows that the same strategy has proven to be effective for bitcoins in the past few years. Over the five years of the last decade, Bitcoin has recorded 100% annual returns. Moreover, 98% of Bitcoin addresses are currently in profit.

History shows that averaging the value of a dollar in bitcoins works. For example, if an investor spent an average of $ 100 on bitcoins since January 2014 and spent a total of $ 35,700, they would return 1,648%, or about $ 589,000.

In addition, on August 6, the Bitcoin price on Binance was $ 11,744. At the time, researchers at CoinMetrics stated that if the dollar value of an investor in BTC had been averaged since its peak of $ 20,000, it would have generated a 61.7% gain. They wrote:

“Even though #Bitcoin is still trading 30% below ATH, the average dollar value since the market peak in December 2017 would bring 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 return for an investor who has on average invested dollar costs in BTC since its peak of $ 20,000 is now significantly higher.

There are several reasons why investing in bitcoin has worked for a long time regardless of price volatility. One of them includes Bitcoin as a nascent store of value that is negligible compared to gold.

Institutional demand for Bitcoin has grown significantly during 2020. BTC is attractive to organizations because it is a hedge and a potential investment that can provide exponential growth at the same time.

The dollar value averaging worked for bitcoins because BTC may have extreme retracement phases. But during a bull race, when infrastructure and fundamentals improve dramatically and institutional cravings occur, its value can increase rapidly.

For example, in March 2020, the price of bitcoins on major exchanges plummeted to $ 3,600. As of November 1, the price of BTC exceeds $ 13,800, having more than tripled since then.

Most BTC addresses are already profitable

Glassnode’s analysts found that 98% of all Bitcoin addresses are profitable. They find these statistics by analyzing when BTC first enters an address and estimates the price at which BTC was purchased. They explained:

“98% of all UTXO #Bitcoins are currently in profit. A level not seen since December 2017, typical of previous $ BTC bull markets. “With an asset that has the potential to grow exponentially, high-risk strategies can become difficult to manage. Thus, dollar value averaging is usually a practical and efficient way to get closer to BTC.

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