Thread by @DeFi_initiate

We need a #profitable investment strategy. When it comes to #bitcoin, this task seems very simple: just hold and number will go up. This maxi view advocates a constant buying strategy commonly called dollar (or unit) cost averaging (#DCA/UCA). But is this the best we can do? 🧵 9

1. The annual chart above shows that, indeed, #number just keeps going up. What about those red candles though? Can we avoid losing money in the red years? Is there a #pattern to them?

The losses can be significant (56-73%) so it would be good to know what to do in those years.

2. The simple answer is that the #red candles repeat every 4 years (the 1st one is an exception: it came 1 year late late due to a lack of #bitcoin market for the first 1.5 years).

Why every 4 years? Because that's the length of the block subsidy #halving cycle (vertical lines).

3. 🔴 2022 🔴 happens to be the year following halving, and these years tend to be red. A simple #strategy could be to #DCA (buy on Jan 1) in green years and #defer investing in red years to the years after (we assume foreknowledge). Is this better than just buying all the time?

4. #Comparing two strategies is not as straightforward as it sounds since there are many different ways of looking at #performance. For this thread, we will keep it simple and just check our portfolio at the end of the period (Dec 31, 2021).

5.
Strategy 1: DCA
Buy $BTC for $100 on Jan 1
Total invested: $1,100
Ending portfolio value: $4.0 million

Strategy 2: Selective DCA
Red: Defer Buy to next green year
Green: Buy $BTC for $100 (+ red $) on Jan 1
Total invested: $1,100
Ending portfolio value: $5.3 million

6. Strategy 2 beats the #bitcoin maxi strategy (DCA) by 33%.

Can we improve on this by also #selling $BTC in red years? To find out, we will Sell the same proportion of our portfolio that a Buy in a red year would represent if green (e.g., 1/4 in the 4th year).

7.
Strategy 3: Smart DCA
Red: Sell some $BTC + Defer Buy to green
Green: Buy $BTC for $100 (+ red $) on Jan 1
Total invested: $1,100
Ending portfolio value: $9.1 million

Strategy 3 beats the #bitcoin maxi strategy (DCA) by 124%
Strategy 3 beats Strategy 2 (Selective DCA) by 69%

8. In conclusion, we saw that the #simple DCA strategy is not optimal and can be beaten handily by applying a #smart DCA approach. While the #strategy assumes advance knowledge of red/green years, this should not be a problem since they repeat on the 4-year #halving cycle.

9. The investigation will continue by drilling down to the monthly chart. Will we get better results by the added flexibility in buy/sell timing?

Note: Lump-sum (buy & hold) investment is not a strategy. A strategy is a series of repeatable actions over a long period of time.