Show HN: Bitcoin investing using Dollar Cost Averaging strategy
github.com
github.com
[1] https://www.amazon.com/Fortunes-Formula-Scientific-Betting-C...
Interactive Brokers is the only way to go for an intermediate person who wants to speculate and have high-powered tools for a relatively low minimum ($10k I believe, $3k or so for younger people under 25?). They refuse payment on order flow, as does Fidelity, IIRC.
Like I said I'm out of that game (minus small speculation on BTC for currency hedging purposes). I've found the love of index funds and low expense ratios.
Robinhood seems like a great fit for the person who has maxed a Roth and wants a brokerage to hold on to ETFs across low-ER providers, like Charles Schwab and iShares ETFs + Vanguard ETFs as they accumulate capital.
Beyond that I can't see using it for trading or anything. If I was slanging options or speculating long/short through retail brokers, I'd be doing it on Interactive Brokers and nowhere else. (And yes, I know Robinhood doesn't do short-side work.)
It was making a small profit until cryptsy got hacked and lost all of my coins :(
Here's the source if anyone is interested though: https://github.com/nfriedly/Coin-Allocator
Now it seems that people come to cryptocurrencies without knowing a thing, misunderstanding the way people act and the incentives involved, but at the same time making heavy usage of the terms "cryptocurrency game theory", "cryptocurrency economics" etc.
Not to say that this DCA thing is wrong or anything, but I've seen people here trying to create speculation strategies using charts and correlations produced by Python scripts, and lots the new cryptocurrencies and tokens are deadly wrong on their assumptions and incredibly poor in their features, like Bancor or Tezos.
>It also assumes hard forks are always bad and that everything can be agreed upon with votes
Those two statements are incorrect. If you want to understand what it brings to the table, then you should read the position paper: https://www.tezos.com/static/papers/position_paper.pdf
Or watch a presentation by the lead about Governance: https://www.youtube.com/watch?v=6OWxGqbknFQ
But aren't the transaction fees (at least for Bitcoin) something like ~$2 per transaction? So you'd end up only investing ~$820 instead of the target of $1000 and losing the rest. Am I missing something?
Now, if I were to move these coins off Gemini, then I would pay the mining fee of $2. However, I could just wait 5 weeks and only pay that once, since the fee doesn't scale with the transaction amount.
Depending on the exchange that probability could easily be >> 0.0.
Exchanges being hacked or absconding with the coins are all too common, ignoring that possibility is not a recipe for a happy ending.
There's a good discussion of this strategy on the Bogleheads wiki: https://www.bogleheads.org/wiki/Dollar_cost_averaging#Dollar...
tl;dr: If you think the market will continue to go up in the short term, lump sum will always beat DCA. A better rule, however, is: do not try to time the market. Just invest when you can.
> A better rule, however, is: do not try to time the market. Just invest when you can.
I'm not sure if I understood this one correctly. Is it like, instead of trying to find the best time to invest, like waiting for something huge to happen, just invest every now and then when you are able to do it. Is that it?
Most people get paid biweekly or twice per month, so it would make sense to just invest when you get paid.
This is what dollar cost averaging usually means... assuming prior money was already invested.
But when you have a lump sum, instead of putting it all in on that exact day you can DCA over a short period of time, like 2-5 days or 3 weeks. This is basically averaging over that period which is better than the chance of just happening to pick the wrong day to buy.
Well, that rule assumes two things:
1. That you're investing for the long term (i.e. retirement), and more importantly,
2. That you're investing in the stock market, which has a very long track record of going up more than it goes down, such that it always goes up over the long term.
That second one, in particular, is much more of an open question when it comes to BTC.
If you never sell you never lose.
Anything different than that is likely to give you headaches.
- Buy an European call and write an European put at this value. This neutralizes your exposure to fluctuations in price; OR - Helpfully calculate that the "delta" for delta-hedging this portfolio is 1/[present stock price] and replicate the put/call combo: when the market goes up 1%, you buy 1/S stock; when it goes down 1%, you sell 1/S stock.
To see why, look at https://en.wikipedia.org/wiki/Greeks_(finance)
Otherwise: try it with a spreadsheet program.
Dollar cost averaging doesn't work because it makes an assumption that doesn't hold in the real world. It assumes that stocks trade in a range, and revert to a "true" price over time. If there were a true price, then you would in fact buy more when the price was low and less when it was high and DCA would work.
But stock prices look more like a random walk, and they display no tendency to revert to a mean.
Here's an article I just found: http://www.crossingwallstreet.com/archives/2010/11/dollar-co...
They don't use it.
The amount of Claude Shannon worship in YC is astounding. Shannon basically lied (possibly to himself too) about AI for about 15 years from 1950 on.
It appears as if Shannon created a maze-solving robot mouse with memory, and also published the basic idea for computer chess around that time. Both ideas seem fundamentally sound.
And even if he had somehow been wrong on something at that stage in his life, he had basically created the science of communication single-handedly long before. Plus some minor work in cryptography.
Unfortunately the better deal is moving that money to GDAX and buying there... which is a bit hard to do at $11 a day.
https://gist.github.com/levelsio/ee9539134035492ba77a7be1b49...
For example, the following system significantly outperforms both buy-and-hold and dollar-cost averaging strategies.
1. Buy when the monthly price of Bitcoin is greater than its 10-month simple moving average (SMA).
2. Sell (and move to cash) when the monthly price is less than its 10-month SMA.
If yes, then I must say that black swans are just around the corner waiting for you.
But it would lose all it's value if it just swings up and down slightly over time, as it buys high and sells low.
Unless you've got a crystal ball, market timing isn't something you can count on for investment returns.
If you hold for less than a year it's income, if you hold for more than a year it's capital gains. So buy and hold would possibly be advantageous in the US at least (35% vs 15% tax rates.)
But it's the profits specifically that are taxed as income, not the whole sale value, right? If I buy and sell one Bitcoin a hundred times in a day and make $1 of profit in total, is the tax is a percentage of $1 or a percentage of 100 times the bitcoin price?
- Buy as the asset is rising above 10 month MA (and likely will continue to rise, maybe for weeks, months, years)
- Sell as the asset is cooling off (falling below 10 month MA). Don't get "back in" until the asset is heating back up.
[0] https://bitcoincharts.com/charts/bitstampUSD#rg1460zigDailyz...
What the strategy ignores is that it gets eaten alive in ranges, when the market isn't trending, this strategy buys high and sells low over and over until you're broke. Works great when the market is trending though.
Bitcoin for example last crossed its 10 month moving average around $246, it's now trading over 4k; $246 would have been a hell of a price to get in at. So yes, buying the "high" works well in a trending market. It's have to drop to $1827 to trigger that same sell signal so you'd lose well over half the floating profit, and then it'd probably cross back and forth a few times when it's near the average trigger many failed entries and exits eating up all the profit you just made.
Moving average strategies don't work except in hindsight when you can see the trend and decide which MA would have worked (something you can't know beforehand), but they're great teaching aids in understanding and learning about trading strategies because they're nearly as simple as a strategy can get.
No one regrets buying AAPL high in 2010, or selling LEH low in early 2008.
This is clearly survivorship bias.
I get 715 days of a trend continuing (down->down or up->up), and 739 days of the "trend" reversing: down->up OR up->down.
That pretty much points at a random walk. "Momentum", and any other patterns people see, are imagined.
I want this so bad.
Bitcoin spot market is going to get SPAN margining instead of Reg-T, so the options leverage is going to be amazing, way better than the ridiculous margin requirements for equity options, it is almost unfathomable.
With the CFTC loving it, CBOE and CME Group gearing up for futures and options, and the Winklevoss Twins pushing them hard because they want that ETF, thats how I know bitcoin is just getting started.
This is one of my bullish cases. The entire "but muh volatility" argument goes completely out of the window, after they reinvent hedging.
In this case ,this is assuming that when the market shifts from bull to bear you can see it with a 30 day average-- or put another way, it's assuming it moves at a certain speed.
When you claim that this "significantly outperforms" is that based on measurements of bitcoin or of some other assets?
No. The system is only updated once a month, e.g., on the first day of the month. Daily price fluctuations are totally ignored.
Anyway, dollar-cost-averaging looks like a great strategy if you are very bullish on a asset which also happens to be quite volatile.
I'd be interested in seeing that as well.
If the resulting havoc doesn't let Bitcoin prices fall to zero, the chaos produced by the inevitable blockchain reorganization after the government lifts the traffic block would definitely kill it. Depending on which chain was lucky enough to get more blocks, one or the other suddenly becomes irrelevant, and thus all transactions approved within it are purged from history. If the traffic block is timed intelligently, people and/or organizations that rely on the immutability of the chain have already performed actions as a result of Bitcoin transfers, such as crediting user accounts on an exchange, which effectively enables double-spending of these coins on a large scale. This could only be prevented by immediate ceasing of all Bitcoin-related action in case of such a "net split" event, which isn't easy to do and which in itself is a huge market disruption.
I consider the likelihood of such an event to be rather small, as I assume the Chinese government to have a vested interest in Bitcoin (indeed I assume that certain parts of it have been active participants in the game of cryptos for quite a while, and even without this, there are the proven interests of the Chinese mining economy, whose participants hold large sums of coins and physical values tied to their mining operations). But nevertheless this is a possible threat with much worse consequences than simply having a little bit slower block times.
(I've not dug into the protocol at a super deep level so I'm not 100% on what protections are in place that might stop this from working given a properly signed transaction.)
The week after I bought mine, it dropped nearly 30% and now it's up nearly 90%. There was a series of emotions because I probably bought enough to be very very engaged but not enough to be in big trouble if it went south.
A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products or services.
Bitcoin has no such thing.
Every time the user base expands a bit as more people become aware of it, then the price goes up.
At the same time, every 4 years the rate of emission is being cut in half... so, more people want bitcoins but there are less new bitcoins being made.
That's not a pyramid scheme but it's also not going to produce a perfect %0.2 appreciation per day type schedule.
It is an investment. With a lottery ticket your odds of winning are very small and you will likely lose almost all the money. With a pyramid scheme, the early entrants are paid with money from the later entrants as part of a scam-- and it's unsustainable-- but bitcoin is perfectly sustainable, it's simply an asset that happens to be appreciating.
What is it when you buy an asset whose demand is going up and you think it's going to appreciate?
Investing.
At worst you could call it "speculating" but speculation is just a word for "high risk investments" and risk is in the eye of the beholder.
I think its pretty clear that the early entrants are getting paid with money from the later entrants. The question left is is BTC sustainable. Etherium shows BTC is easily replaced. Currently yes it is an asset that happens to be appreciating - do you think anyone wants to own it when it starts going down?
The site has helped me to take the timing anxiety out of buying; it was initially made as a SAAS, but I've abandoned that idea. Please don't sign up with too many ;)
I like this idea, but only if it's scripted and for more than $100 per run.
My point about doing 30 trades every week manually is a lot still stands though. Maybe I'll try scripting this with Bittrex's API. It would be cool to have an option to scale each trade size by the current relative market cap, so you can have your own crypto index fund.