Foreign media comment that directly applying the dollar-cost averaging method commonly used for traditional stocks and bonds to Bitcoin may not effectively control drawdowns. The article argues that Bitcoin’s long-term price is influenced by halvings, leverage, and the pace of institutional adoption, making its behavior more akin to a distinctly cyclical asset; therefore, advisors allocating to Bitcoin ETFs should focus more on the current phase of the cycle rather than mechanically buying continuously.
The article fundamentally questions the dollar-cost averaging framework.
The article states that dollar-cost averaging is common in stocks and bonds because these assets have historically shown relatively stable upward trends over the long term, allowing staggered purchases to smooth out volatility and reduce timing pressure. However, Bitcoin has experienced significant price surges followed by deep corrections across multiple complete cycles; simply extending the purchase period does not significantly reduce paper losses during bear markets.
The article cites historical performance, noting that Bitcoin has completed four relatively complete cycles since 2011, typically centered around halvings: reduced new supply, rising demand, rapid price appreciation, accumulation of system leverage, followed by a correction phase. The author states that long-term holders have historically experienced drawdowns exceeding 70%, with peak-to-trough maximum drawdowns reaching as high as 80%.
The author advocates adjusting positions according to market cycles.
The article argues that Bitcoin typically spends 12 to 18 months in clearly defined bull or bear market phases, and this state is not entirely random. Judgments can be based on data such as price trends, momentum, and on-chain cost bases. The author’s institution states that its research tracks ten independent signals to identify the current market phase.
According to the article, when the majority of signals turn positive, Bitcoin’s average monthly return can reach 25%; when the majority of signals weaken, monthly performance declines significantly. The author argues that wealth management institutions should treat Bitcoin as a dynamically allocated asset within their portfolios, rather than holding it at a fixed long-term weight.
- The text cites an example where an advisor can set a maximum allocation limit for Bitcoin.
- However, the actual allocation ratio can be adjusted between 0%, 50%, and 100% per cycle.
- Related decisions can be based on rule-based signals rather than on-the-spot subjective judgment.
The focus is on minimizing large drawdowns.
The article states that cycle-aware strategies do not necessarily outperform buy-and-hold in every phase, but their advantage lies in avoiding concentrated periods when Bitcoin declines by 20%, 30%, or even 40% in a single month. The author cites backtesting showing that such approaches have achieved a higher Sharpe ratio over the past 15 years compared to simple holding, while reducing maximum drawdown from 80% to 44%.
The article argues that this is particularly important for wealth management institutions required to adhere to fiduciary duties and risk control standards. It concludes that Bitcoin can still serve as part of a diversified portfolio, but its allocation should reflect its highly volatile and cyclical asset characteristics.
Additional information: The article also includes perspectives from other advisors, discussing blockchain value capture, Ethereum’s potential role as collateral, and the possibility of integrating AI with crypto infrastructure. However, the primary focus of the article remains on strategies for allocating to Bitcoin ETFs and whether cycle-based signals should replace mechanical dollar-cost averaging.