Last month I wrote about how I gambled on Bitcoin and Dogecoin. Yep, I bought Bitcoin ten years (too late) after writing about it in 2011.
It was a painful click, but I finally owned a tiny fraction of a single bitcoin. I was only investing $50 and a whole bitcoin would have set me back more than $60,000.
Anyone could have guessed what would have happened since I opened up that Pandora’s Box. Bitcoin dropped. Then it dropped some more. Then it dropped more. I’m writing this on May 23rd and it dropped to around $31,500 a bitcoin today. That’s close enough to half of what I paid – or essentially losing half of my money. Of course, since it was $50, I wasn’t losing much sleep over it…
… quite the opposite actually. I was rooting for it to go lower and lower so I could get buy a high fraction of bitcoin with my money.
Dollar Cost Averaging with Crypto
Most intermediate investors are familiar with the concept of Dollar-Cost Averaging (DCA). The general idea is to invest at various intervals which reduces the volatility of the overall investment.
That might sound confusing to some people so let me give you an example of how I’ve been buying crypto over the last month. (I use the word “investing” when I buy crypto, but others may substitute the word “gamble.” Despite how we may characterize the action, it is simply “buying crypto.”)
Here’s my spreadspeet with all my buys (I haven’t sold anything yet):
(click the image for the full-size view in a new tab)
There’s a lot going on in this here. I have invested in two coins bitcoin and ether. (The Dogecoin that I invested in before was in my kids’ account and it was about $22 – I’m not counting it here.) I think most of the columns make sense. The CoinPrice(EST) is simply the amount I invested by the amount I bought minus any commission to Coinbase. The regular CoinPrice is what Coinbase reports the price at the time of the transaction. The only reason they are different is the rounding issue of buying small fractions of a bitcoin.
- There is one bitcoin transaction that’s listed as “Free.” Coinbase gives you $5 in bitcoin for free for signing up.
- The bright green price is 10% off the last time I bought. That’s a rough target for when I should consider buying more on the dip.
- There’s a little pie chart that give me a quick visual of which coins comprise my crypto portfolio. Different coins have different strengths and weaknesses, but that’s a topic for a different article.
- The Total line for each coin makes sense until you get to the CoinPrice(EST). The price there is the current price of the coin using the Google Finance function of ‘=GOOGLEFINANCE(“CURRENCY:BTCUSD”)’. The column after that is the percentage of gain/loss. The column after that is my overall cost basis (which we’ll get to later).
- The next column on the total’s line is the cost basis divided by my first purchase. This is an important number because it shows how useful dollar cost averaging has been. There’s a big difference between having a cost basis of $60K and $42K to use my bitcoin numbers as an example.
- There’s a column of “52-week high” which could be confusing as well. Basically, I searched for what the 52-week high of the coin was. The dollar figure represents how much money I’d make if it goes back to that high. With stocks this almost always happens over time – especially with a diversified index. With crypto, no one knows. If you look at the bright blue row on the bottom it shows that I could make 65% IF (and it’s a huge IF) the coins get back to their highs.
You can grab this Google Sheet to use for yourself if you want. You’ll want to fill it with your own data of course. You’ll also have to add the pie chart yourself as that doesn’t seem to copy over.
As it stands now, I’ve lost 9.25% on all my crypto. That’s not great. You can buy in today and be in a better position than I am. However, I’m in a much better position than I would have been if I invested $1000 on April 17th. As you can tell from the prices of my purchases, crypto is very volatile. After I initially bought Ether it just to over $4000. At that point, I didn’t know if I was ever going to buy Ether again.
I feel this is a good plan for buying on dips. That’s great for accumulating crypto. The piece I’m missing is when to sell. I would like to hold for a year to save on capital gains. However, that’s a very, very long time in the crypto world. It’s hard to know if it’s going to twice as much or half as much. If you have any thoughts I’d love to read them in the comments.
If you are interested in getting started in crypto, I suggest signing up with Coinbase. They’ll give you a few dollars-worth of crypto currency and I’ll get a little money for referring you.