Investment Strategies After Fluctuations in the Crypto Market: An Analysis of Auto-Invest Strategies for BTC and ETH

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The recent turmoil in the cryptocurrency market, especially the collapse of a well-known project, has undoubtedly cast a shadow over many investors. However, from another perspective, this event may also have a positive impact on the long-term development of the market. In the current market environment, the law of survival of the fittest and elimination of the weakest is coming into play.

After this incident, most small cryptocurrencies experienced a decline of over 30%. Although mainstream cryptocurrencies also suffered losses, they still serve as a market barometer. This event has sounded the alarm for small investors: do not concentrate all funds into a single cryptocurrency. A wise approach is to allocate at least 50% of funds to mainstream cryptocurrencies like Bitcoin and Ethereum.

For investors looking to invest in mainstream cryptocurrencies, a viable strategy is to invest regularly in Bitcoin and Ethereum. This approach is different from traditional speculative trading, as it does not determine the amount to buy based on high or low prices, but rather buys regularly regardless of price. Some people choose this method because they do not understand technical analysis and cannot engage in short-term trading; others recognize that the win rate of short-term predictions is only around 50%, and therefore choose a long-term investment perspective.

The cryptocurrency market is highly volatile, and experienced investors are well aware of this. The market trend in 2020 is a typical example: at the beginning of the year, the price was over 10,000 dollars, then it plummeted to over 3,000 dollars in March due to the pandemic, and by 2021, it climbed to over 60,000 dollars. This extreme volatility caused many confident investors to get liquidated and made some who resolutely avoided bottom fishing miss out on opportunities. On the contrary, those investors who remained calm during the process, even if they were once trapped, ultimately achieved considerable profits. In the long run, staying in the market is more important than pursuing the perfect buy price.

The premise of a dollar-cost averaging strategy is that you have long-term confidence in the investment target. If you are not optimistic about its future, then there is no need for dollar-cost averaging. The core of this strategy is to believe that it will ultimately perform well, regardless of how the process unfolds, and to insist on "staying in the market."

There are indeed some high-win-rate strategies for short-term market predictions. However, the problem is that predictions can always be wrong, and if you happen to miss an important upward opportunity (like in 2020), it would be very regrettable.

One of the main advantages of dollar-cost averaging in Bitcoin is that, due to regular purchases, the holding cost will be close to the average price during the investment period. As long as the investment time is long enough, for example, more than a year, the average cost will not be too high. This is because, according to the financial market's "bull short bear long" rule, the rapid rise phase of Bitcoin usually does not last long, typically only 1-3 months, which means that for most of the time, the price is at a relatively reasonable level.

However, the dollar-cost averaging strategy also has its limitations. It is a "timing-agnostic" investment approach, so it cannot guarantee profits when starting the investment at any point in time. For example, the dollar-cost averaging strategy started in December 2021 has resulted in losses for nearly 5 months up until now. A more extreme example is that, as of now, the 1000-day average price of Bitcoin (which is roughly equivalent to the cost of a 3-year dollar-cost averaging) is around $28,000. If the price of Bitcoin falls below this level, investors who have been dollar-cost averaging Bitcoin over the past 3 years (2020-2022) will face losses.

Therefore, the key to dollar-cost averaging is to choose "long-term bullish targets" and to have the patience to stick to the next cycle's peak. Only long-term rising investment targets can offset the problems caused by market timing.

When implementing a dollar-cost averaging strategy, it is important to maintain a regular schedule and amount, which can be chosen to be monthly or weekly. Since you have chosen dollar-cost averaging, you should minimize subjective timing and avoid frequently adjusting the purchase amount based on short-term market fluctuations. From a long-term perspective, the cost of a single purchase is not the most critical factor.

The current market position can serve as a starting point for dollar-cost averaging. Every major drop or a decline of over 5000-10000 points can be seen as a good opportunity for dollar-cost averaging.