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According to an analysis by a Reddit user, selling a portion of Bitcoin when the market is in a state of extreme greed can be a more profitable investment strategy than simply buying and holding. Reddit user u/skogsraw shared an analysis on March 21st, which showed that using the Crypto Fear & Greed Index to set a dollar cost averaging (DCA) strategy yielded a higher return on investment (ROI) compared to a standard DCA strategy.
Striking Insights from a Reddit User
u/skogsraw’s comparison strategy involved investing $100 weekly in Bitcoin using DCA starting from March 17, 2018, to September 9, 2023, resulting in a 124.8% ROI. The second strategy involved a tiered DCA plan where $150 would be invested weekly during extreme fear, $100 during fear, $75 during neutral periods, $50 during greed, and $25 during extreme greed periods.
The third strategy was similar, but it involved selling 5% of the accumulated Bitcoin every week when in the extreme greed zone. This strategy resulted in a 184.2% ROI, outperforming the 124.8% benchmark and the 140.1% ROI from the non-selling strategy. The Reddit user did not explain why they chose these specific dates but mentioned that picking a market bottom or peak would not be fair. This period covers at least two major bear markets and one bull market. However, u/skogsraw admitted that the tests were not cross-validated and emphasized the need for testing over more time frames.
u/skogsraw’s findings generally did not take into account the Bitcoin network fees, which typically peak during periods of extreme greed. The Reddit user shared the following statement:
“Despite everything, these are very convincing results in favor of adjusting your DCA strategy. I hope you find them useful in the upcoming bull run.”
Key Strategies for Bitcoin Investment
The data aligns with the view that market corrections typically occur when investors are very greedy. u/skogsraw also implemented two more strategies, the AlphaSquared Risk Model DCA and the PI Cycle Top Indicator, which yielded 385% and 332.4% ROI respectively. However, commentators questioned the results of these two complex data-driven investment strategies.
Crypto Fear & Greed Index score is currently at 75/100 or at a level of greed. The index has dropped 15 points since reaching its highest score of 90/100 or extreme greed on March 5th since February 20, 2021.
