How to Time Your Bitcoin Purchase

So you decided to buy bitcoin but don’t know how much to put in and when? You’ve come to the right place – No one can tell you how much to put in, but I can help you decide how to decide.

How much bitcoin to buy?

How much of your hard earned worthless fiat money to convert to the best money humanity has ever conceived depends on how much you know about Bitcoin. People who know almost nothing, think it is risky. People who know the basics think putting in 1% of your net worth is OK, and they are comfortable with it. People who know a lot, think it is risky to NOT buy bitcoin, and many put every available cent towards it. Interesting huh?

So my suggestion about how much to put is – start with an amount you would not care about losing, then learn as much as you can URGENTLY. As you learn, you will come to the realisation that you don’t have enough bitcoin. No one will tell you (actually, Bitcoiners will), you will naturally decide this yourself once you absorb the correct information. My website is dedicated to showing you the correct information.

When Michael Saylor, CEO of Microstratergy, a publically traded company, decided to look into Bitcoin, he said that it took him about 15 hours of research (most of which is contained in my Bitcoin Syllabus) to decide that Bitcoin was the best money ever created. He then converted his company’s treasury asset to Bitcoin, and purchased $425 million dollars worth in 2020 – 38,250 bitcoin. He also bought about 18,000 for himself.

Types of purchasing strategies

Firstly, I want to say, that knowing about Bitcoin is not the same as knowing how to trade. You don’t need to know how to trade. My opinion, after 20 years of detailed critical examination, and backtesting of trading tools, is that technical analysis is not helpful, and presents a trader with statistical illusions not obvious to the untrained eye. The purpose of this article is not to dive into this opinion, so I’ll leave it there.

Having said that, when you make a purchase, you are actually taking up a trading strategy of some type, even if you are not intending to. Every decision has an opportunity cost.

Besides outright trading (attempting to predict the future and buy bottoms and sell tops), I will discuss 2 types of purchasing that I find reasonable.

  1. Lump Sum Purchase
  2. Dollar Cost Average

Choosing one over the other is actually a form of trading, which is not obvious at first. I will explain.

Lump sum purchase

Let’s say you have $1,000,000 to buy Bitcoin. That might seem a lot, but this is hypothetical, so why not?

If you use it all and buy bitcoin on one day, even if you spread it out through the day or over a few days, I’ll consider this a lump sum buy. If you exercise some patience, and hold back say $100,000 to wait for a pullback, it might seem wise, but you are actually trading.

It’s as though you bought $1,000,000 worth, then sold $100,000, and are waiting to buy back cheaper. There is no difference really, except trading fees and tax obligations.

If the price goes down, you end up with more bitcoin. If the price goes up, you end up with fewer. That’s the gamble, which may be fine, but you should know that it is a gamble after all – every decision is going to be.

Dollar Cost Average (DCA)

(Sorry, if you are European, it’s ECA – Euro Cost Average)

This option is supported by many, particularly the ones that suggest you souldn’t be gambling. But in fact, it is also gambling because you opted out of Lump Sum.

Let’s use the $1,000,000 example. You would choose an amount, let’s say $10,000 and buy regularly, let’s say daily. After 100 days, your purchase will be complete.

Compared to a lump sum buy, if during the 100 days, the price went up, you have fewer bitcoin. If it went down, you have more. That’s the hidden gamble.

How to Choose the Best Strategy?

I am not writing this article to convince you that your ability to use charts does not help you predict the future. It is what I believe though. A trader that beats a Lump Sum Buy or a DCA strategy is lucky, and statistically, they must exist. If you don’t accept this, I assume you will try to trade. If you do accept this, here’s what you should do…

Whether you decide on Lump Sum or DCA, there is a risk of regret that you didn’t choose the other. My suggestion is to visualise these regretful scenarios and decide what type of regret you are most comfortable to deal with.

For example, I personally find DCA and watching the price rise (knowing that I could have bought cheaper earlier on), much more distressing than Lump Sum and watching the price go lower (knowing that if I had waited, I could have bought more bitcoin). So MY choice is Lump Sum.

If you find it hard to choose between those two types of regrets, then you can minimise the pain of either by hedging. You combine Lump Sum and DCA.

With this method, you might put half (half is the maximum hedge) of your availabile investment at the start, and reserve the rest to regularly buy.

It’s a hedge:

  • If the price goes up, part of your decision was right (lump sum), and part was wrong (DCA)
  • And similarly, if the price goes down, part of your decision was right (DCA), part was wrong (Lump Sum)

This hedge is not free though. The hidden price you pay is that you are giving up the 50% chance of being completely right (with Lump Sum or DCA) and suffering no pain. You are locking in some pain, but reducing the intensity.

Why 50% Lump Sum? Because this is the mid-point. If you choose 75% you are favouring one more than the other. That might be right for you, but the maximum hedge is 50%.

Regular Savings

Do be aware that adding a portion of your salary each fortnight presents you with the same dilemma. Do you spend all of you fortnightly savings in a Lump Sum, or DCA over time until your next pay? Regular savings is not DCA, it’s regular savings.

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