It’s not too late to buy bitcoin

With bitcoin surging through $15 000 (about R234 462) in the last week, many investors are wondering whether it is too late to jump on board.

Those who bought in late 2017 at prices close to $20 000 are still roughly 27% in the red and had to sit through a collapse in price of 84% before it climbed back up to current prices.

This kind of volatility has spooked many investors away from bitcoin.

Rand cost averaging is a way to accumulate bitcoin over time by making purchases weekly or monthly. It reduces the risks associated with severe price fluctuations.

Had you done this since January 2018, the overall return would have been 48% – despite the 84% drop in price between December 2017 and November 2018.

After peaking at close to $20 000 in December 2017, the price fell to about $3 200 by late 2018.

Investing R100 a month would have been a losing cause until the price rebounded to $11 000 by late 2019. Thereafter, new investments added to the profitability of the strategy.

“Buy low and sell high” is a tried-and-tested strategy for traders, but this involves trying to time the market – which is inherently risky. Very few traders get it consistently right. Given bitcoin’s volatility, this strategy could backfi re.

If you had used rand cost averaging at R100 a month since November 2017, the capital invested of R3 600 would have grown to a net capital value of R5 341.

Rand cost averaging has its drawbacks: for example, an opportunity to buy when prices drop. Bitcoin has a tendency to reverse direction after a sharp move up or down. Traders will pick up these opportunities. Rand cost averaging will tend to miss these moves.

But it is a way for those new to bitcoin to make a start without having to time the market.

Another advantage is that it does not require technical understanding, nor following the constant flow of news that might move the price.