DCA Strategy Recap and Analysis

For the past few weeks we have been discussing the Dollar Cost Averaging (DCA) investment strategy, and running backtests on Masternode coins listed on the Midas.Investments platform. The coins that we have analyzed were as follows: Midas, DIVI, ESBC, and Telos. These are also the coins that make up the Midas MNI share – in addition to Bitcoin. (At the time of writing, all the coins from the list were included in the MNI).


List of previous articles on the topic of DCA:

In this article we are going to recap and discuss the backtest results of the DCA on the aforementioned coins, and make the case that a DCA strategy on Midas’ MNI share is the most profitable. As mentioned in all previous articles, the information presented in this article should be taken only for educational purposes, and is not intended as financial advice. All investors should do their own research before making any investment. 

What is Dollar Cost Averaging?

According to Investopoedia, Dollar-cost averaging is, “an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase.” In other words, the strategy is to scale into an investment by making regular purchases of a set amount – regardless of the price at the given time. Doing this creates an “average entry point” which is more favorable than going all in at once. 

Why use the DCA Strategy?

Most investors who are new to cryptocurrency investing lose money due to FOMO – fear of missing out. They often fall into pump and dump schemes – buying the top and selling the bottom. Far too many of us fell for these traps in our early days of investing. In fact, P&D groups target these naive investors. 

Common statistics show that over 90% of traders lose money. Less than 10% of experienced traders are actually profitable in their day trading. Oftentimes, people lose money trading because they trade by emotion. The lack of an established strategy – with specific entry and exit points – is the downfall of inexperienced traders. 

Rather than a strategy based on speculation, the DCA strategy is one for long-term investors. By spending a set amount of money on an asset over a given period of time, DCA investors grow their wealth over time. 

Backtests

Here are the results of a one year backtest on Midas, Divi, ESBC, and Telos, respectively.

MIDAS

  • Total Capital Invested: $1300
  • May 2020 balance (USD, Reinvesting) : $4,100.31
  • *May 2020 balance (USD, selling rewards): $2,991.95
  • *Dividend: $557.21

DIVI

  • Total Capital Invested: $1300
  • May 2020 balance (USD, Reinvesting) : $2629.78
  • *May 2020 balance (USD, selling rewards): $2059.79
  • *Dividend: $451.94

ESBC

  • Total Capital Invested: $1300
  • May 2020 balance (USD, Reinvesting): $2832.12
  • May 2020 balance (USD, selling rewards): $2360.49
  • *Dividend: $256.55

TELOS

  • Total Capital Invested: $1300
  • May 2020 Balance (USD, Reinvesting): $3130.65
  • May 2020 Balance (USD, Selling Rewards): $2262.44
  • *Dividend: $758.96

*NOTE: The “DIVIDEND” portion only applies to the “selling rewards” plan. The total portfolio value of this plan can be determined by adding the balance and dividend.

As is visible from the backtest results, the DCA strategy was extremely profitable on all of the coins tested. They posted returns on investment of: 315%, 202%, 217%, and 240%, respectively. When applying the same DCA strategy to BTC, if held in the 15% ROI share on Midas.Investments, there was a 16.5% ROI. 

All four of the Masternode coins that we conducted DCA backtests on are included in Midas’ new MNI Index share, with BTC rounding out the portfolio. Each of the coins represents a 20% share in the index, with weekly rebalancing to maintain these proportions. The effect of rebalancing magnifies these gains even further, since coins that gain value will be sold and coins that lose value will be bought – “selling the top” and “buying the dip”. 

Though it’s hard to calculate exactly, if we average the returns made from these coins – we should get a rough approximation of the benefit of a DCA strategy on the MNI share. (The first person to write the word “earnings” in a Telegram chat Midas will receive $5 in a Midas coin!) From our backtest results, we can gather that a DCA strategy on the MNI share would yield ~198% ROI with a monthly investment. These gains are actually a conservative estimate, as backtesting increases the value of the overall pool. By investing in the MNI share, the volatility associated with investing in any one project is significantly reduced, as the risk is spread over a variety of products and projects. 

For more information on Midas, the Midas.Investments platform, and the MNI Index, visit the Midas.Investments website and join the Discord channel.

Don’t forget to check back in on the blog, as we will be posting regular content and updates on Midas, Masternodes, and crypto in general. 

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