About dollar cost averaging, my thoughts :
- in a normal stock market it is used to lower the volatility, and if used carefully (buy or sell once a month - or even only twice a year) you can avoid most bubbles
- in Bitcoin's universe, where everything goes so fast, it can make sense to do a DCA twice a week during a one or two months period once you really believe in it. In that case you are probably sure to avoid most bubbles/crashes such as the last or the current one.
What do you think of that ?
I would rather do this way (as a guide to newbies):
1. Buy with a small amount as soon as possible (upon first hearing about this, it is unlikely that anyone will invest more than 10% of net worth, more likely 1%).
2. Every time you gain confidence in Bitcoin, buy more. Do not consciously DCA, because your inability to appreciate Bitcoin fully in your first day automatically serves as DCA
3. When the combined effect of your purchases and bitcoin's value appreciation results in you having more than half of your net worth in Bitcoin, select a "percentage of other assets" you want to have as a hedge in your portfolio. The "rake" % is always half of "other assets" %, if the rake is taken after each doubling in price.
If you are already in, you can start following the plan from (2.) or (3.).
A further word about the optimal rake%:I suggest you use 10-20% rake. This lets you keep 35% (in case of 10% rake) or 11% (in case of 20% rake) of your bitcoins when their value goes to $1,000/m
BTC.
- If you use only 5%, it takes quite long before you cash out any meaningful amount, which is risky. Also your portfolio tends towards 90% bitcoins/10% everythingelsecombined, which makes most of us too emotional.
- If you use 0%, you go crazy. Many can live with this as long as bitcoins are a small % of their portfolio, but start making mistakes (such as selling 90% of the holdings, at the instant they appreciate so that he can buy a new house) when the percentage grows bigger. Better be disciplined, set a schedule to sell, and follow it. (You may skip the first several doublings if your capital is small and you want to quickly grow it.)
- If you use 30%, you only retain 3% of your bitcoins, which I think is suboptimal. If you are so concerned about getting your fiat value back, I suggest you let it go up to the second double, and then repatriate the original investment.
Better get used to the idea that it is very improbable that you will have the same number of bitcoins when their purchasing power is 1000x higher than now. In astute cases, I think you have shed 2/3 of them, whereas most have only 1-10% of the amount that they now have.The same happened when Bitcoin was $0.5 until now. If someone has 35% of the bitcoins he had that time, he is very smart (and very rich).