Whenever we approach a halving and a new pump cycle begins, buying bitcoin becomes more attractive for both institutional investors and normal people like you and me. While self-custody is the most important part of owning bitcoin, the buying strategy you use can significantly impact the amount of bitcoin you end up buying with the same amount of fiat. Two main camps seem to have emerged as the popular method for buying: Lump Sum and Dollar Cost Averaging (DCA). Let’s compare the pros and cons of both strategies to help bitcoin plebs and sat stackers find the best method for their own particular circumstances and risk tolerance.

Lump Sum Or DCA

After you have made a few bitcoin purchases and come to the realization that you want to consistently grow your stack, the next step is to decide the best way for you to do that. There are a couple of dominant buying strategies and some debate as to which one is best. Most bitcoiners either Lump Sum or DCA but there is no one “correct” way to stack sats. You can even use both methods if you have the money to experiment with.

The lump sum “smash buyer” is often characterized by their conviction and spends everything to get on zero fiat while the DCA buyer is more concerned with mitigating loss and buys over a longer period of time. Deciding which strategy is best for you isn’t as straightforward as you might like so it all comes down to your appetite for risk and understanding the benefits and drawbacks of both methods.

Smash Buy: “I’m All-In”

Lump sum buying or “smash buying” bitcoin is a strategy characterized by “smashing the buy button” to make a lump-sum bitcoin purchase at a single point in time OR a just making larger purchases as needed instead of stretching out buying over a long period of time with DCA.

Lump sum advocates tend to believe that it’s not worth the risk to slowly enter the market over a long period of time. They believe that bitcoin’s upside potential is so great that having bitcoin is more important than buying discounted bitcoin after a price dump. This “all in” mentality is best suited when the price of bitcoin is trending upward but the smash buyer always enjoys a good dip and uses the opportunity to stack sats at a discounted price.

Lump sum buyers tend to not care what the price of bitcoin is because they understand that bitcoin is going to take over the world as a global reserve asset and they want as much bitcoin as possible as soon as possible.

Benefits of Lump-Sum Buying

• Potential for Larger Gains: The lump sum strategy may experience rapid gains if bitcoin’s price increases shortly after their purchase. The benefit of a lump sum buy strategy is the asymmetric upside to buying bitcoin and maximizing gains by acquiring bitcoin as soon as possible.
• Psychological Simplicity: Smash Buy is straightforward – make a one-time investment and wait for the market to pump. No need to wait for a DCA because you know that bitcoin is the apex asset class and will devour every other asset class in the world.

 

Drawbacks of Smash Buy

• Market Volatility: Success with Smash Buy can rely on accurately predicting the market’s direction, which is notoriously challenging. If you buy bitcoin and then the price dumps, you miss out on buying more bitcoin at a lower rate.
• Weaker During Bear Market: Lump-sum buying results in loss of purchasing power during price dumps that characterize bear markets. Lump sum purchases will result in having less sats than a DCA during a bear market.
• Fewer UTXOs: If you use a service that requires you to take self-custody as soon as you buy, then making larger purchases will result in consolidating your UTXOs less often than smaller purchases with a DCA.

 

DCA: “Slow & Steady Wins The Race”

Dollar-Cost Average (DCA) is a traditional finance investment strategy where an investor regularly buys a fixed amount of an asset over a longer period of time, regardless of the price. This approach aims to mitigate the impact of market volatility by spreading purchases over time. When the price of an asset is lower, the fixed purchase size will naturally result in buying more of the asset. Inversely, then the price of an asset is on the rise, a fixed purchase amount will result in buying a smaller amount the asset.

Most large centralized KYC exchanges offer DCA as a service. Some of these services even have an automated withdrawal once you reach a certain threshold.

One of the best tools to orange pill your friends and family is actually a tool that shows the value of buying smaller amounts over a large amount of time. Using DCA BTC, you can see how well you would have preserved the value of your money over a period of time making fixed purchases.

Benefits of DCA

One of the key benefits of DCA vs lump sum is that it spreads risk out across a larger timeframe. The downside to this is that you will miss out on any big market pumps as more and more people buy bitcoin.

• Risk Mitigation: DCA reduces the impact of short-term market fluctuations since purchases are spread over time. As the price of bitcoin fluctuates, the amount of bitcoin purchased will fluctuate but the amount of fiat spent will stay the same.
• Disciplined Investing: DCA encourages a disciplined approach which helps buyers to “set it and forget it” knowing that they are spending a fixed amount of fiat on a fixed schedule. Emotions and market analysis are removed from the equation and replaced with automation.

 

Drawbacks of DCA

DCA is not without its own set of drawbacks. Since it involves buying smaller amounts over time to reduce risk, it also reduces the reward during market pumps when compared to lump-sum purchasing.

• Missed Opportunities: During price pumps, DCA buyers may miss out on the potential gains achievable through a lump sum.
• Reduced Initial Impact: Buying with DCA always ensures that you will buy near the market bottom but also ensures that you will buy near the market top. The gradual nature of DCA means that the gain/loss of market fluctuations might be less compared to a smash buy approach.
• Custody Consolidation: If you use DCA to make more purchases over a longer timeframe, you will likely need to have a custody hold onto your bitcoin until you are prepared to make a larger withdrawal. If you withdrawal too often, you will need to consolidate more your UTXOs than with lump sum buys.

 

Choosing The Right Strategy

Knowing when and why to implement either strategy can be helpful for stacking the most sats that you can. The decision between lump sum and DCA ultimately depends on your own risk tolerance and stacking goals.

Here are some things to consider before you make the decision to adopt one strategy or another:

• Risk Tolerance: Buyers comfortable with market volatility may lean towards smash buy to maximize gains in relation to fiat, while those seeking a lower risk approach might prefer DCA to minimize the risk of loss from price dumps.
• Market Outlook: Bullish market expectations favor lump sum, while DCA is more suitable for uncertain or bearish market conditions where the price is consistently slumping. Historically, the price of bitcoin pumps for ~500 days following the halving so smash buys may perform better during this period. Once the price has leveled off and even begins to correct downwards as speculators trade back into fiat or get distracted with shitcoins, adopting a DCA strategy may perform better until the next halving.
• Long-Term vs. Short-Term Goals: Bitcoiners with long-term goals may find DCA aligns with their objective of steady, incremental growth, while those seeking larger stacks may opt for smash buys.
• Why Not Both?: If you are interested in using both methods to maximize the amount of bitcoin that you accumulate, you may want to experiment with both at the same time to see which one performs best with your own goals. Some bitcoiners use a 3-way allocation with 33% DCA, 33% for scheduled lump sum buys, and 33% for smash buys during market dips.

 

Smash Buy or DCA FAQ

• Q: How should I choose between DCA and Smash Buy?
  A: The choice depends on your risk tolerance and your own personal savings goals. DCA is more stable and suited for minimizing risk, while smash buy may appeal to those who truly understand that bitcoin will take over the world or those simply seeking greater gains.
• Q: Can I switch between DCA and Smash Buy?
  A: Yes, anyone can switch between lump sum and DCA based on market conditions. Although past performance is no guarantee of future returns, the price of bitcoin has historically pumped for ~500 days after every halving before leveling off and then dumping until the next halving. It may prove to be beneficial to smash buy just before a halving and for ~500 days after the halving before switching to a DCA to see if that would get you more sats than using only a single method.
• Is one strategy better than the other?
  A: There is no one-size-fits-all answer. The effectiveness of each strategy depends on various factors, and what may work for you may not be suitable for someone else. It’s crucial to align the chosen strategy with individual objectives and risk tolerance. You can backtest both strategies using past prices and the amount of bitcoin you’ve already purchased. Would you have more bitcoin if you used a different strategy?

  Here is an excellent thread from Wicked Smart Bitcoin on comparing lump sum and DCA over several different timeframes.

  

 

Final Thoughts

If you’re still trying to figure out if you should lump sum or DCA, it’s important to understand the advantages and drawbacks of both methods. Lump sum buys offer a greater upside for those of us who are permanently bullish and know that bitcoin is going to become a global standard. DCA provides a more stable approach that minimizes the risk of loss but also removes the reward of larger “profits” when the price pumps.

If you are still learning about bitcoin, a DCA buying schedule is probably better suited for you while you make your way down the rabbit hole. As soon as you have your “ah ha moment” and come to the inevitable realization that bitcoin will take over the world, you’ll quickly discover that adopting a lump sum buying strategy will get you more sats than playing it safe.

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