Buying $1,000 of BTC Every Month Over the Last Year Would Have Given You an ROI of 66%
Bitcoin has been gripped in ‘Crypto Winter’ over the past year. Sentiment has been low, and the price of bitcoin has been relatively cheap. One researcher decided to determine your ROI if you had bought $1,000 of BTC each month over the past year.
Jon Nielsen at CoinCodex analyzed the ROI for an investor who decided to purchase $1,000 of BTC, ETH, and other major cryptocurrencies over the past year.
This type of investment strategy is called “dollar cost averaging”. Instead of buying, say, $12,000 of BTC in a single purchase, you spread out your purchase over a 12-month period, buying $1,000 of BTC each month regardless of the current price.
Here’s what would have happened if you bought $1,000 of BTC each month over the past year, according to Nielsen’s research:
“With the $12,000 total investment, you would have accumulated 2.33 BTC, which is worth around $20,331 at the time of writing.”
That would give you an impressive return of 69% relative to the USD.
However, your investment would have been underwater for most of the strategy. For the first 8 months, you would have felt increasingly stupid about your decision to purchase $1,000 of BTC each month. At one point, your ROI would have dropped all the way down to -67% at its lowest point.
Of course, this isn’t surprising given that last year was the heart of Crypto Winter, with crypto prices nearing 18-month lows at various points in the year. It was a difficult year to buy and hold bitcoin.
Things started to take a turn in May, which is when your dollar-cost-averaging strategy for bitcoin really started to look like a smart idea.
“When looking at the table tracking the performance of this strategy, it’s obvious that Bitcoin’s performance in May had a decisive impact on the strategy’s success,” explains Nielsen.
“Even in April, just one month before the end of the experiment, the strategy would have performed slightly worse than investing in an S&P 500 index fund.”
In May, things changed. By the end of the month, your $1,000 per month investment in bitcoin would have returned a 66% better performance than the S&P 500.
Of course, there’s no guarantee these returns will stick. Bitcoin can swing wildly in either direction. Future months will show if May 2019 was an outlier – or if bitcoin will continue surging moving forward.
Ultimately, Nielsen’s research showed that investing in crypto gave 69% returns relative to the USD, 12% returns relative to ETH, 7% returns relative to the rest of crypto markets, and 66% better returns than the S&P 500.
Will Crypto Outperform the S&P 500 in a 10 Year Window?
In 2007, in the leadup to the Great Recession, Warren Buffett made a famous bet: Buffett bet $1 million (for charity) that an index fund would outperform a collection of hedge funds over a 10 year period.
In other words, investors could get better returns investing in a general index fund as opposed to trusting their money with the world’s biggest and best-supported hedge funds.
In 2017, Buffett won that bet. The S&P 500 index provided returns of 7.1% compounded annually, significantly more than the basket of hedge funds, which only returned an average of 2.2%.
Digital asset manager Morgan Creek Capital Management proposed a similar $1 million wager for charity six months ago. Morgan Creek proposed a $1 million wager that its Digital Asset Index Fund, which tracks 10 different cryptocurrencies (with bitcoin weighted at 72.8%), would outperform the S&P 500 over a 10-year window.
Right now, that bet is looking like a mixed bag. BTC has matched the S&P 500 relatively closely over the past 6 months, ranging from 0.96x at the bottom to 1.11x at the peak). ETH has remained more positive against the S&P 500, however, peaking at 1.37x in October before falling closer to parity in recent months.
If you had $1,000 to invest every month for the next 12 months, would you invest in crypto or a stock market index? Based on this research, you’re better off investing in crypto.
You can view Jon Nielsen’s full analysis and breakdown here.