Opinion Article by CryptoJelleNL
Two weeks ago, I shared a tweet stating how all you need to do to make life changing money in crypto, is to buy and wait. My long-time followers know this to be a recurring theme, as I have told them to keep their trading strategies as simple as possible for more times than they can count.
No matter the state of the market – be it bull or bear – I repeatedly tell my followers to use strategies such as buy and hold or dollar-cost average methods, in an attempt to boost their odds at success.
Especially after I publicly exited around Bitcoin's first peak, and bought back in around the lows – people started to listen.
In this opinion article, I discuss why I believe the majority of traders would be better off as long-term spot holders, and share a few strategies and tricks I use to make sure I don't screw it up along the way. Keep in mind these are my personal views, and they are based on my situation and preferences. Do your own research and consult a financial advisor before making investment decisions. The following should not be considered advice.
The odds are not in your favor
First things first, let's look at some statistics. According to various sources, and proven right by history time and time again; 95% of traders lose money. To put that differently, if you get into trading, the chances of success are extremely slim.
This statistic is not unique to crypto, but has been proven right in all markets. For instance, when it comes to stock markets, the active traders tend to underperform passively investing in an index by around 6.5%.
If this is where you expect me to show you how long-term investing suddenly boosts your success odds to 100%, you're wrong. In fact, a survey by LendingTree shows that of all respondents that held crypto - only 28% was able to sell it for a profit, and another 13% broke even. Still - this data suggests that by quitting trading, and moving to long-term strategies, you're 4.6 times as likely to succeed.
Nevertheless, no matter your approach, the odds are stacked against you. These statistics are so low, because new traders and investors have a lack of risk management, and easily succumb to their trading emotions - a combination that can wipe out a trading account in just a few bad trades.
If that was not enough, beginner traders have a tendency to overtrade with inflated position sizes as well. Recipes for disaster.
Introducing dollar-cost average, but better
We just discussed how the odds are stacked against you, and all the things you can do wrong on your financial journey – but I believe there are ways to push your odds into a more favorable range.
For starters, a simple long-term holding strategy already boosts your odds by 4.6 times when compared to the average success of active traders, and those long-term holding strategies do not even consider what is an optimal entry, and what isn't. Chances are high that many of the respondents in that LendingTree survey bought the top, no wonder they never turned a profit.
The problem with dollar-cost average
Over the past years, I have operated using an adapted version of the famous dollar-cost average method, an approach where investors buy a small amount at fixed interval, in order to slowly accumulate over time. Great idea – but it works best in markets like the S&P 500, which literally goes up in perpetuity.
Crypto is much more cyclical, which means that using a DCA-like approach without consideration for this cyclical nature will result in paying more than necessary. I don't believe throwing money at Bitcoin every week, regardless of market conditions, is a great strategy.
Udi Wertheimer demonstrated this well:
The Alternative: Dollar-Cost Average 2.0
In my experience, dollar-cost average becomes much more successful when it is deployed in specific conditions, such as a significant drawdown from all-time highs, or using a strategy that buys spot when the daily RSI is below 30.
It's difficult to time the exact bottom, but it's relatively easy to buy around the bottom. Start scaling into a market when prices are significantly lower than the previous all-time high, and you'll do better than the majority of your competition.
For me, the moment to start scaling in was after FTX collapsed. We had already seen a significant drawdown, and the collapse of FTX felt like the perfect capitulation event. I did not care if we went lower, in fact, I hoped it did - because that'd have given me the opportunity to buy Bitcoin for even cheaper.
Instead, Bitcoin bottomed, and started climbing not long after. I have been buying in since, and will continue to do so until my timeline is convinced we are in a bull market, or when I am satisfied with my position size.
Once we break into new all-time highs (above $70,000) - I will deploy a reverse-DCA like approach, selling chunks of my Bitcoin holdings at fixed price targets.
Essentially, my personal recipe for success in the coming bull market is as simple as the below image. It has worked well for me in previous cycles, and I don't see why that would suddenly change here. (not financial advice, price may just as well nuke to 0 in the minutes following the release of this article!)
Closing thoughts
To sum thigns up, long-term investors have a much higher chance of success, and I believe my approach to market pushes those odds even further. Minimise your emotions, and have a clear plan to follow, and you just might make some money in the coming years.
Good luck.
Author's Disclaimer: This article is based on my limited knowledge and experience. It has been written for informational purposes only. It should not be construed as trading or investment advice in any shape or form.
Editor's note: CryptoJelleNL provides insights into the cryptocurrency industry. He has been actively participating in financial markets for over 5 years, primarily focusing on long-term investments in both the stock market and crypto. While he watches the returns of those investments roll in, he writes articles for multiple platforms. From now on, he will be contributing his insights for Alpha Circle as well.
Check out his twitter: twitter.com/cryptojellenl
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