According to a recent analysis by a Redditor named u/skogsraw, selling a portion of Bitcoin (BTC) when the market is in a state of “extreme greed” can be a more profitable investment strategy than simply buying and holding. The analysis used the Crypto Fear & Greed Index to determine a dollar-cost averaging (DCA) strategy, which resulted in a higher return on investment (ROI) compared to a standard DCA strategy.
The benchmark strategy involved investing $100 into Bitcoin every week from March 17, 2018, to September 9, 2023, and yielded a 124.8% ROI. The second strategy, known as the tiered DCA plan, adjusted the amount invested based on the market sentiment. For example, $150 was invested during times of “extreme fear,” $100 during “fear,” $75 during “neutral,” $50 during “greed,” and $25 during “extreme greed.” This strategy resulted in an impressive ROI of 184.2%.
The third strategy was similar to the tiered DCA plan but included selling 5% of the accumulated Bitcoin each week when the market was in the “extreme greed” zone. Surprisingly, this strategy proved to be the most profitable, with an ROI of 184.2%, surpassing both the benchmark strategy and the strategy with no selling, which resulted in ROIs of 124.8% and 140.1%, respectively.
It is unclear why u/skogsraw chose the specific dates for the analysis, but they stated that selecting market lows or highs would not have been fair. The period analyzed included two major bear markets and one bull market. Although the tests have not been cross-checked, u/skogsraw believes that testing should be conducted across various timeframes to validate the findings.
It is important to note that the analysis did not take into account Bitcoin network fees, which typically increase during times of “extreme greed.” The results of the analysis strongly suggest that adjusting one’s DCA strategy based on market sentiment can be beneficial. The Crypto Fear & Greed Index supports this view, as it indicates that market corrections often occur when investors become too greedy.
U/skogsraw conducted two other strategies known as the “AlphaSquared Risk Model DCA” and the “PI Cycle Top Indicator,” which generated ROIs of 385% and 332.4%, respectively. Some commentators have expressed doubts about the results of these complex data-driven trading strategies.
Currently, the Crypto Fear & Greed Index score is 75/100, indicating “greed.” This is a decrease of 15 points from its score of 90/100, which represented “extreme greed” on March 5, 2021, the highest score since February 20, 2021.
