Author: Tree Finance

Would you be tempted if someone told you that simply increasing the leverage of your fixed BTC investment from 2x to 3x could significantly boost your returns?

Most people would. After all, in this industry, leverage is like magic—it promises the same principal to generate much greater returns. Especially when you see a friend around you making a fortune with high leverage during a bull market, the anxiety of "missing out on a billion" can instantly overwhelm rational thinking.

But if I told you that a five-year backtesting data shows that increasing leverage from 2x to 3x only results in an additional 3.5% profit, while the cost is nearly wiping out your account during a bear market—would you still make the same choice?

This is not a theoretical deduction, but a harsh conclusion drawn from an initial principal of $18,250, having gone through a complete bull and bear market cycle. More surprisingly, in terms of risk-adjusted return metrics, the best-performing strategy turned out to be the simplest approach of regular spot investments. This result defies many people's intuition and reveals a fundamental logic in crypto investing that is often overlooked.

When Dreams Meet Reality: The True Face of a Five-Year Ledger

Let's first look at the paths these three strategies have taken from the same starting point. All three accounts start from zero, with a fixed amount invested weekly, and the only difference is the leverage ratio. After five years, the spot account grows to $42,717, the 2x leveraged account reaches $66,474, and the 3x leveraged account ends at $68,833.

At first glance, a 3x leveraged position seems like a winner, but there's a fatal detail hidden here: the additional profit from 2x to 3x is only $2,300. Keep in mind, however, that the extra profit from 1x to 2x was $23,700—ten times greater. This means the marginal utility of leverage is diminishing rapidly; you're taking on more risk, yet receiving almost no commensurate return.

Even more dramatic is the trend of the net value curves. The curve for regular spot investments is relatively smooth, like a steadily ascending mountain path, with fluctuations but an overall upward trend. The 2x leveraged strategy indeed demonstrates remarkable explosive growth during bull markets, but it also suffers significant drawdowns during bear markets. The curve for the 3x leveraged strategy resembles an electrocardiogram—crawling close to the ground for long periods, multiple times nearly reaching flatline levels, and only barely surpassing the 2x leveraged strategy during the final rebound phase.

This reveals a harsh truth: the "success" of a 3x leveraged product entirely depends on a final surge in the market. For years, its performance consistently lagged, and account holders endured long periods of frustration and endless doubt. Imagine this: what would have happened if there had been no strong rebound between 2025 and 2026, or if you had exited the market prematurely due to pressure and cut your losses along the way?

When we shift our focus to risk indicators, the picture becomes even more alarming. The maximum drawdown for spot dollar-cost averaging is 49.9%, which is already enough to keep most people awake at night. With a 2x leveraged position, the drawdown reaches 85.9%, meaning your account would shrink to just 14% of its value at the darkest moment—dropping from 100,000 to 14,000. To recover from that, you would need a 614% gain.

What about 3x leverage? The maximum drawdown is 95.9%. What does this number really mean? When your account hits the bottom, it's left with only 4%, and it would require a 2400% gain just to return to the starting point. This is not merely a loss—it's close to a "mathematical bankruptcy" state. Deep in the 2022 bear market, those holding a 3x leveraged dollar-cost averaging position were essentially playing an entirely new game—subsequent profits were almost entirely generated by new capital invested after the bottom of the bear market, not by the recovery of the original position.

Even more cruel is the psychological torment. Among risk indicators, there is a metric called the "Ulcer Index," which specifically measures the pain of an account being underwater for a long time. For spot dollar-cost averaging, this index is 0.15, for 2x leverage it is 0.37, and for 3x leverage it soars to 0.51. What does this mean? It means that your account is giving you negative feedback for most of the time. Every time you open your trading software, it becomes a psychological torment, and every price drop makes you question your life.

In this state, the most rational investment decision becomes the hardest persistence. You will agonize over whether to reduce your position and cut losses during every rebound, panic about whether the price might drop to zero during every decline, and doubt whether you are a fool during prolonged sideways consolidation. This kind of torment cannot be measured by returns; it drains your beliefs, health, and quality of life.

Why does 3x leverage perform so poorly? The answer lies in a technical detail: the drag caused by volatility under the daily rebalancing mechanism.

The logic of this mechanism is simple: to maintain a fixed leverage ratio, the system must adjust positions at the end of each trading day. When BTC rises, positions are increased to maintain a 3x exposure; when BTC falls, positions are reduced to avoid liquidation. It sounds reasonable, but in highly volatile markets, this mechanism can become a hidden butcher's blade.

In a volatile market, BTC might rise 5% today, fall 5% the next day, and rise 5% again the following day. For spot holders, this merely results in going nowhere. However, for those using 3x leverage, every fluctuation gradually erodes the principal. When the price rises, they chase higher prices; when it falls, they are forced to cut losses. Even when the price remains unchanged, their account balance continues to shrink. This is the classic "volatility drag," and its destructive power is proportional to the square of the leverage used.

On an asset like BTC, which has an annualized volatility consistently above 60%, using 3x leverage actually subjects you to 9x the volatility penalty. This is not an exaggeration, but a result that can be precisely calculated mathematically. That's why you'll see that, over the course of several years, a 3x leveraged account behaves like a mouse trapped on a treadmill—racing frantically but never getting anywhere.

Back to the original question: If you really believe in the long-term value of BTC, what is the most rational choice?

The answer the data provided was surprisingly simple—dollar-cost averaging in spot investments. It's not because it offers the highest returns, but because it delivers the best performance on a risk-adjusted basis, is most psychologically sustainable, and is the most realistic in terms of execution. That Sortino ratio of 0.47 represents the highest return efficiency per unit of risk; that relatively smooth net value curve means you don't need an iron will to stick with it through to the end.

A 2x leverage can be an option, but it's suitable only for a very small number of people—those who can withstand an 85% drawdown, have sufficient cash flow to meet margin calls, and, more importantly, possess strong mental resilience to endure the darkest moments. This isn't a matter of knowledge, but rather a test of overall resources and psychological toughness. Most people will drop out along the way.

As for the 3x leveraged product, this backtest using five years of data has proven one thing: its long-term cost-benefit ratio is extremely poor, making it unsuitable as a regular investment tool. That additional 3.5% return cannot compensate for the extreme risks you bear, the psychological stress, and the near-zero possibility of total loss. More importantly, it ties your fate to the assumption that "the final market rally must be strong," which is an extremely dangerous gamble in investing.

BTC itself is already a high-risk asset, with annualized volatility of 60% and daily price swings of 10% being nothing unusual. If you truly believe in its future, the wisest approach might be to reduce leverage and extend the investment horizon, allowing compound interest and time to achieve the miracles that leverage promises but often fails to deliver. After all, true wealth is not measured by how much you make during a wild bull market, but by how much you retain after a full market cycle, and whether you still maintain your rationality, health, and love for life throughout the process.

When mathematics meets human nature, it is often human nature that yields first. Those who ultimately reach their goals rely not on higher leverage, but on clearer understanding and more steadfast perseverance.