Bitcoin halving is fast approaching. Block rewards are projected to go down from 12.5 BTC to 6.25 BTC on May 13th, 2020. As the clock ticks and the market inches towards a reduction in the supply of new Bitcoin, economic logic dictates that if demand is strong, price should inevitably rise. While the strength of demand for Bitcoin is unknown, the halving might just have enough momentum to push the narrative and trigger a BTC buying spree. So, how can you front run the halving or buy what is expected to be cheaper Bitcoin now to take advantage of the expected rise in prices?
Strategies to Accumulate Bitcoin
There are a few strategies that you can use to increase your exposure to cheaper Bitcoin. Here are the most popular strategies out there:
- Dollar cost averaging
- Buying the dip
- Stacking Sats
- Buying everything you can now
Each strategy has advantages and disadvantages, as well as varying risk levels. Which strategy is the right one for you? To understand this, it is necessary to analyze what each strategy entails and what are the potential pitfalls of choosing one instead of the other.
Dollar Cost Averaging
Before you even consider any strategy, you should assess your financial situation. Take a look at how much Bitcoin you already have, how much more you are willing to buy and how sustainable your buying patterns are. When it comes to the dollar cost averaging strategy, this last part of your assessment is critical.
Dollar cost averaging consists of timed and measured purchases that investors make periodically regardless of the price. Sometimes the investor buys low, and sometimes high, but it all averages out in the end. This is a great strategy for those who understand the virtues of Bitcoin but are not fully convinced that the demand for this asset will be as strong as expected. Therefore, when dollar cost averaging investors get to a certain point, they can understand if they can make money – on average – by selling if demand is as strong as expected. If the market shifts and starts dipping, they can assess quickly whether to buy more or cut their losses by selling, because they understand how sustainable their buying patterns are.
This is a medium risk strategy, because it involves steadily increasing exposure to a volatile asset like Bitcoin, but it allows investors to acquire that exposure at varying prices, which reduces the impact of volatility.
Buying the Dip
If dollar cost averaging is all about buying periodically at different prices, buying the dip involves buying every time prices go down. Psychologically, this strategy is counter intuitive because it can be completely anticyclical. Investors employing this strategy must be fully convinced that the price will eventually go up and that the dips are the result of weak hands exiting the market. They must also have ample fiat reserves, which means that it is not a good strategy for those who are already in.
This could be a dangerous game because it is difficult to understand when a dip becomes a massive sell out. When it comes to Bitcoin, it is also difficult to understand what constitutes a dip and at which point it will turn around. In fact, the very framing of this strategy “buy the dip” shows that the underlying assumption is that Bitcoin prices have to go up eventually. It is a high-risk strategy, which has proven to be highly profitable many times before – especially leading up to the 2017 all time high of almost $20,000 USD per coin. Nevertheless, it is foolish to assume that it will always be profitable.
Investors who are more risk averse but would still like to have some exposure to Bitcoin markets before the halving, are not likely to apply a buy the dip strategy. A dollar cost averaging strategy might also seem to risky to them. These investors will probably be comfortable with less exposure to Bitcoin as a whole, than investors who would go for the previous two strategies. A stacking Sats strategy would probably be the most suitable for them.
Sats – or Satoshis – are the smallest unit a whole Bitcoin can be broken into. It is a hundredth million of a Bitcoin, or the 8th number after the decimal point. Stacking Sats entails accumulating small quantities of Bitcoin, which are worth pennies or even a fraction of a penny, regularly. This is tantamount to having a piggy bank and putting small change in it constantly, which means that the strategy is not only low risk but also low cost. There are even ways in which investors can start stacking Sats for free. The obvious drawback of this strategy is that if you are expecting a price hike due to the upcoming halving, you will not be able to stack enough Sats between now and then, so your profits will be small.
Buying Everything you Can Now
Investors can also choose to ditch all the previous strategies and simply take a gamble with any given amount of money. In other words, they could just buy everything they can now. Although it might seem reckless, it is an interesting strategy because it frees up time and mental resources to engage in other endeavors. Since a good investor always considers the opportunity cost, this is a great strategy for those who understand that the opportunity cost of cost averaging, stacking Sats or buying the dips is all the income generating activities you are giving up to engage in those strategies.
This strategy also results in limited exposure, because investors using it understand how much they are willing to risk and just pour that amount into the market. They absolutely let the chips fall where they may, so if they are convinced that the price will go up, they will just hold until the market reaches a point at which they are comfortable cashing out. This also saves them the pain of trying to calculate where the bottom of the next dip is or what the average price they paid for Bitcoin is after every purchase. Buying everything you have now, however, is a high-risk activity. From the point of purchase onward, if the market goes down, the only thing the investor can do when applying this strategy, is to either cut losses and exit, or ride it out.
Buying Bitcoin Ahead of the Halving
These are the main strategies you can use to buy Bitcoin ahead of the halving event. Just remember, the most important aspect of each strategy is to understand what you can afford, how much risk you can stomach and how comfortable you are with managing each strategy’s exit point. Therefore, there is no winning strategy here, and some might even recur to applying a combination of strategies or a hybrid of any two given strategies. In any case, if the halving is already priced in, none of these strategies will yield a short to medium-term profit.