Anyone who invests money, whether it is a mutual fund, a stock or a cryptocurrency, will tell you that the investment involves a certain amount of risk and reward. It can be just as much a dice as placing a bet on roulette or with a bitcoin sports booklet.
One of the keys to success in both investing and gambling is managing someone’s cash. There are many strategies and ways to do this. However, one of the most popular risk management methods relates to a concept known as the average cost of the dollar.
What is the average dollar cost?
The average dollar cost is basically the practice of averaging a potential buyout or desired level of investment over a period of weeks or months, rather than investing the entire lump sum at a time. The goal of practicing average dollar costs is to reduce the effects of volatility in the short run, while still achieving one’s long-term investment goals and investing in a way that ensures the desired amount of market exposure and thus the desired level of risk versus reward.
Gambling on Bitcoin, the risk of protection from the average cost of dollars
PlanB is the username of a Twitter user known as one of the whales / leading Bitcoin investment advisors. PlanB is also known as the individual who created the popular hypothesis about the future price of Bitcoin. Flow inventory determination model. The stock hypothesis says that the reduction in the new supply of Bitcoin over time, accelerated by the event of halving Bitcoin that occurs approximately every four years, will continuously increase the price in the long run.
PlanB notes that anyone who invested in Bitcoin using the sliding system from 2017 to this year would have returns of as much as 70% during that period. Given that the average annual return on a well-diversified stock portfolio or real estate investment is typically around 10%, getting a seven-fold higher return through dollar cost on average on a Bitcoin position is a huge profit.
70% bitcoin gambling
Here’s how the strategy works: An investor buys Bitcoin in 2017 as the price goes up, slowly increasing his investment. As the price peaks at the end of the year, regular incremental investments will continue, but the amounts will decrease as the price falls (which a smart investor would definitely do given how much hoop there was around Bitcoin and the fact that the excitement reached ridiculous high level).
Consistently investing during 2018 while simultaneously reducing the monthly amount (or any payment frequency you choose, and then re-increasing your investment during 2019 would yield a 70% return over three years on your total principal investment.
You would expand your cube over three years and see that your money supply increased significantly.
Can bitcoin gamblers and investors keep averaging the cost of the dollar forward?
As they say in investing and in bitcoin gambling: past history does not necessarily dictate future results. So the big question is, can those thinking about big bitcoin use a dollar average strategy in the future still be successful?
The answer to that question must be a resounding yes. Although Bitcoin is relatively new to the investment and gambling scene compared to other forms of both activities, the concept of average dollar costs has always been a tried and tested, proven and true method of risk management versus reward.
Think logically, is it better to dip your toe in water and slowly enter the water when you realize that sharks are swimming around you? Or is it better to jump in your head first and let the sharks see you alive?
Clearly, a better approach is risk management. In investing and gambling, it’s not just about choosing the winner that matters. He survives long enough to learn and is left with money to continue investing in Bitcoin once you know what you are doing. This is partly why the average dollar cost works so well.
Invest in Bitcoin over time. Manage volatility and reap long-term, instead of keeping short-term focus. That is the key to success.