OneBigLife on Nostr: I have always recommended to nervous noobs to go half in, and DCA the other half. It ...
I have always recommended to nervous noobs to go half in, and DCA the other half. It always felt right.
This note articulates why it actually IS right if you want to hedge against price moves over a period of time.
This note articulates why it actually IS right if you want to hedge against price moves over a period of time.
quoting note1s0f…vy9wI'm here to burst bubbles.
Dollar cost averaging is GAMBLING. Here me out...
If you regularly buy bitcoin with a component of your paycheck, that's not DCA, that's regular LUM SUM buying.
DCA would be if you take a paycheck and spread the purchasing OF THAT QUANTITY of "money" over the time.
You withhold buying with it all, and spread your risk over time, so that if it goes down after buying with the first small fraction, you don't feel as bad, because you get to buy more bitcoin at a lower price with your next fraction.
In summary of that, you are gambling that the price won't go up over the time you withhold your buying. Because if it does go up you end up with fewer bitcoin, and if it goes down you end up with more bitcoin.
On the other hand, lump sum buying is the exact opposite. You're gambling the price will not go down. If it goes down after you lump sum buy, and it always does, you end up with fewer bitcoin. And if it goes up right after you buy, then your gamble paid off.
People think that DCA is a hedge but in fact it is not, it is one extreme of a gambling strategy, and lump sum is the other extreme.
To correctly hedge you would take any quantitative money that comes to you, and lump some half of it, and DCA the other.
Until next time.
