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Show HN: Bitcoin investing using Dollar Cost Averaging strategy
- bkolobara 9y ago> The investor purchases more shares when prices are low and fewer shares when prices are high. If you never sell you never lose.
- kbody 9y ago"Rule No.1: Never lose money. Rule No.2: Never forget rule No.1." - Warren Buffett
- jdeibele 9y agoWould that were true. There are any number of companies that get close to zero (Theranos) and others that do go out of business (see 2008 - Lehman, Washington Mutual, etc.)
- empath75 9y agoIf you didn't sell on mtgox you lost everything.
- jankins 9y agoTangential to the current discussion but you didn't have to cash out, you just had to transfer the coins to your own wallet. I think that was the only reasonable choice -- IMO it really seemed at the time that storing coins with mtgox was not a trustworthy option.
- byproxy 9y agoI bought 4 BTC on Mt.Gox when they were ~$25 each. Naturally, after I bought it crashed to the ~$1 territory. Thought to myself "Figures..." and decided might as well hold. Cut to a year (or two?) later and the prices hit the ~$30 territory. I decide to sell and reap a nice little ~$20 profit. Lucky me, eh?
- gnaritas 9y agoTrading != investing, dollar cost average is an investing strategy, not a trading strategy; you have an investing bot, not a trading bot.
- metroidfan832 9y agoNo, they have neither. This is just a script to purchase an amount of bitcoin. It has to be run manually for each purchase. It is easier I think to just login to the exchange every day and make the purchase. Not sure why this is so high on HN.
- shreve 9y agoPieter Levels wrote pretty much the same thing a few days ago, but most people that know about Pieter know he likes to automate things. I'm pretty sure he set his up as a cron job. https://gist.github.com/levelsio/ee9539134035492ba77a7be1b49ed832 https://gist.github.com/levelsio/ee9539134035492ba77a7be1b49...
- hidiegomariani 9y agoyes you should add a cron to automate it daily
- deleted 9y ago[deleted]
- thedangler 9y agoYour link to Electrum is giving a 404. Thought you should know.
- hidiegomariani 9y agothanks fixed
- atemerev 9y agoDCA is just the way of periodically buying some bitcoin at the fixed dollar amount.
- shreve 9y agolevels did it https://gist.github.com/levelsio/ee9539134035492ba77a7be1b49ed832 https://gist.github.com/levelsio/ee9539134035492ba77a7be1b49...
- hidiegomariani 9y agohundreds of people did it http://lmgtfy.com/?q=bitcoin+dca http://lmgtfy.com/?q=bitcoin+dca
- techaddict009 9y agoI follow this manually. Buy 100$ worth top 30 crypto every week on bittrex.
- hidiegomariani 9y agoi am ok with diversification, but 30 is way too much i think. I prefer leveraging the investment on less cryptos putting more in less of those
- quantdev 9y agoManually? So every week you do 30 separate trades on Bittrex? Seems like a lot of work and also you have 30 transaction fees (including the spread cost) for only $100. I like this idea, but only if it's scripted and for more than $100 per run.
- jstanley 9y agoTransaction fees (including the spread cost) on cryptocurrency exchanges are typically a percentage rather than a fixed amount. So it doesn't matter if you do $100 every week or $400 every four weeks.
- quantdev 9y agoYes, you're correct -- my mistake. Bittrex's fees are 0.25% of each trade. 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.
- bpicolo 9y ago.15% I think it is? Or is that a different fee class
- charlespwd 9y agoThat's exactly what I did. I'm doing it on poloniex, but I'm pretty sure you could do the same for bittrex too. However, they are a bit limiting on the kind of orders you can make (I believe it's limit orders only). Poloniex has fill or kill orders, which makes some things easier to handle. https://github.com/charlespwd/crypto-trader https://github.com/charlespwd/crypto-trader
- netinstructions 9y agoThe example says they want to invest $1000 over the course of 3 months, so 1000 / (3 * 30) = 1000 / 90 = ~11$ / day. 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?
- fiatjaf 9y agoYou're right. All these investing "strategies" ignore these costs.
- hidiegomariani 9y agothe fees depends on the exchange. In this case are 0.26%. Even if you dont use Dollar Cost Avg you loose those fees anyway
- quantdev 9y agoYou're somewhat missing something. Take the Exchange Gemini: I send USD to Gemini and then I purchase BTC on Gemini and am charged a 0.25% fee on my purchase. So far I haven't paid any transaction mining fees and it's because Gemini isn't actually settling these transactions on the blockhain. 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.
- krrrh 9y agoLeaving the coins on the exchange for that long requires an exchange-hack-or-failure cost averaging analysis to balance things out.
- quantdev 9y agoFair, but I doubt the probability of the exchange getting hacked in 5 weeks is meaningful. I agree that you should never leave your coins long term on any exchange, just to be clear, but there is a reasonable amount of risk you can take.
- fiatjaf 9y agoWell, I recommend buying everything at the moment you decide you want to buy, no matter the price. Anything different than that is likely to give you headaches.
- pdog 9y agoA better approach with an extremely volatile asset like Bitcoin is a simple tactical asset allocation strategy. 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. That's it. Market timing improves the risk-adjusted returns with minimally increased transaction costs versus a buy-and-hold strategy.
- fiatjaf 9y agoAre you sure? Would you bet your money on that? If yes, then I must say that black swans are just around the corner waiting for you.
- cookingrobot 9y agoI think this strategy would be safe to black swans because it would be invested when it's going up tremendously, and out of the market when it drops tremendously. 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.
- lgas 9y agoThe whole point of black swans is that you can't predict them. They are equally likely to happen when the market (or a particular security) is going up or when it's going down. I don't see any reason to think you'd be more likely to be out of the market when something unpredictable happens.
- quantdev 9y agoStandard momentum strategy, sure, but there's no way you can claim this outperforms buy-and-hold for certain.
- deleted 9y ago[deleted]
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- fiatjaf 9y agoSome years ago everybody involved with the cryptocurrency universe had a relatively good understanding of economics, markets, agent incentives, game theory and so on -- even if these people didn't mention any of these terms, they seem to have a natural, logical, grasp of everything that was needed (not much). 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.
- trophycase 9y agoWhat's wrong with Tezos?
- fiatjaf 9y agoNothing wrong, I just think it is silly. It's only feature is on-chain voting on protocol changes, something that wouldn't have prevented the Bitcoin hard-fork, for example. It also assumes hard forks are always bad and that everything can be agreed upon with votes, as if everybody were always satisfied with election results.
- relyio 9y ago>It's only feature is on-chain voting on protocol changes >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 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 https://www.youtube.com/watch?v=6OWxGqbknFQ
- gtrubetskoy 9y agoThe re-balancing system (of which dollar averaging is a variant) is described in the Fortune's Formula book [1] as something that Claude Shannon [2] would demonstrate in his lectures at MIT as a mathematically proven guaranteed winning strategy. At the end of the talk there was a Q and A, and the first question always was "do you yourself use this system", to which he replied "Naw, the commissions alone would kill you". [1] https://www.amazon.com/Fortunes-Formula-Scientific-Betting-Casinos/dp/0809045990 https://www.amazon.com/Fortunes-Formula-Scientific-Betting-C... [2] https://en.wikipedia.org/wiki/Claude_Shannon https://en.wikipedia.org/wiki/Claude_Shannon
- simo7 9y agoPlus the formula is more geared towards diversyfing across different assets.
- AgentME 9y agoThe transaction fees at Kraken and many other cryptocurrency exchanges are percentage-based, so that issue shouldn't apply here.
- Buge 9y agoIt would still apply. Them taking a percent of my money every trade hurts me. Is there any guarantee that my profit per trade is larger than their fee per trade?
- AgentME 9y agoYou pay the same amount in fees for buying a lump sum of $100 in Bitcoin or for buying $100 in Bitcoin over a week using dollar cost averaging. If dollar cost averaging with no fees is better than a lump sum with no fees, then I'm not sure how adding the same fee to both strategies could make dollar cost averaging any worse relatively.
- gtrubetskoy 9y agoNote that Shannon did use the word "alone", implying that commissions is not the only reason why this strategy is not as great as it seems at first. I'm guessing he (being one of the most prominent mathematicians of the 20th century) picked this example exactly because it was a counter-intuitive and complex problem that seems simple on the surface.
- nfriedly 9y agoI wrote a bot that did something similar on the cryptsy exchange - it didn't pull in any new cash, it just tried to re-balance every time it ran. 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 https://github.com/nfriedly/Coin-Allocator
- simo7 9y ago"Bitcoin investing" sounds a bit like an oxymoron to me (more like speculating). Anyway, dollar-cost-averaging looks like a great strategy if you are very bullish on a asset which also happens to be quite volatile.
- politician 9y agoIs it true that the vast majority of all Bitcoin mining happens near hydro plants in China? If so, regardless of anything else, doesn't that expose Bitcoin users to significant state actor risk?
- rtkwe 9y agoThe only state action that poses a huge risk is if Chinese miners totally have >50% of the hashrate and the Chinese government took control of the miners to mess with transactions. Other than that the worst risk is them shutting down all the miners which would mainly just slow down transaction clearance which would drop the price but not catastrophically.
- Slartie 9y agoNope, actually the most significant risk to Bitcoin specifically from the Chinese government would be an effective block of all Bitcoin-related traffic between China and the rest of the world. This would lead to about 50% of mining power being in China and about 50% being outside of China, both "networks" happily continuing to mine blocks (albeit a lot slower) without knowing about each other, thus confirming entirely different transactions. The market would effectively be crushed by such an event, since the whole point of the blockchain is to have a stable, worldwide consensus about the ownership of every single Bitcoin, which isn't the case anymore if there are two independent networks which both claim to be the "real Bitcoin" (important to note that this is entirely different to the situation between BCH and BTC, where the forked BCH chain is clearly considered to be a "different" chain from BTC by all relevant market actors and also by the software due to different rules for block validation). 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.
- ucaetano 9y agoThere is plenty of empirical evidence showing that DCA doesn't work, and only provide a psychological value. Why are people still using it? And for Bitcoin?
- ericb 9y agoSources?
- ccleve 9y agohttps://www.google.com/search?q=dollar+cost+averaging+empirical+evidence&ie=utf-8&oe=utf-8 https://www.google.com/search?q=dollar+cost+averaging+empiri... 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-cost-averaging-the-myth-that-wont-die.html http://www.crossingwallstreet.com/archives/2010/11/dollar-co...
- p4lindromica 9y agoThe book A Random Walk Down Wall Street
- ucaetano 9y agoBesides all the actual sources that others provided, there's always the "proof by capitalism": if DCA made sense, institutional investors would use it and make more money. They don't use it.
- thanatropism 9y agoIt says "Claude Shannon" on the tin. 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.
- thanatropism 9y agoIt requires some maths (and some faith in the Black-Scholes model, but it works okay in historical simulations), but you can do this instead. To lock in a price for some stock or foreign currency for a given delivery date: - 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) https://en.wikipedia.org/wiki/Greeks_(finance) Otherwise: try it with a spreadsheet program.
- danmaz74 9y agoOk, but where are you going to trade those derivatives?
- test6554 9y agoJust buy Bitcoin Today and hold it for a year. Then hold it for another year. Buy it with money that you don't ever need again. Don't do so much that you feel like you woud be in trouble if you lost it all and don't do it with so little that doubling that money in a year would not be worth the rollercoaster that is bitcoin ownership. 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.
- rb808 9y agoYeah that's a good sign that Bitcoin is not an investment its a lottery ticket, or more realistically an entry in a pyramid scheme.
- __s 9y agoHow is Bitcoin a pyramid scheme as opposed to USD?
- overcast 9y agoIs that a joke? Show me the USD swinging as wildly as Bitcoin does in any time frame. There's a reason it's the standard across the world.
- baddox 9y agoI don't believe there is any conceptual correlation between X being a pyramid scheme and the price of X fluctuating wildly. "Pyramid scheme" is an actual term with a fairly widely-understood meaning. It doesn't just mean "any thing I don't like."
- overcast 9y agoA very small minority of people control the vast majority of Bitcoin, it goes from thousands to hundreds over a course of months. All from manipulation by that small minority.
- rothbardrand 9y agoFWIW, this is a feature on coinbase-- you can just have them ACH charge your bank account a fixed amount each day, each week, each month, etc (each hour maybe?). Unfortunately the better deal is moving that money to GDAX and buying there... which is a bit hard to do at $11 a day.
- qmachu 9y agoI am sorry to say that but this script is quite laughably naive. It even includes storing your exchange API keys on plain-text on disk. Yum!
- mrosseel 9y agoa few years back I made a similar DCA website, you can find it at: https://coinsavers.net https://coinsavers.net 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 ;)
- popman 9y agoWhen I saw this initially, I thought this'd be a bunch of graphs detailing how you would have done to invest using DCA at different times in the past, and at different amounts. I'd be interested in seeing that as well.