Saving with Bitcoin

Bitcoin is a volatile asset. At this point, we should all accept that high volatility is a funda­mental charac­ter­istic of Bitcoin today.

You’ve probably enjoyed this volatility as the price rocketed to ATHs. Although by now, you may have also experi­enced the downside of this volatility. Earlier in the year, Bitcoin was down >50% from its highs in a span of ~3 months.

You should be investing in Bitcoin for its volatility — able to wait out price dips, even accumu­late during them, and celebrate the dramatic rises when they occur.

In this piece, we will go over why it’s a fool’s game to try to trade a wild market like Bitcoin, why Bitcoin’s volatility repre­sents an oppor­tu­nity, and why steadily purchasing Bitcoin through recur­ring purchases is a great strategy to accumu­late Bitcoin for the long term.

Bitcoin is a roller­coaster ride, and the wise move for most riders is to strap in, hold on tight, and don’t get thrown off. It may make you nervous and nauseous sometimes, but the right answer was never to jump off the roller­coaster. No, the answer is to always hold on tight and enjoy the ride.

Despite the volatility, every single person who has held Bitcoin for +4 years has made money on it, and you can, too, by taking some small action­able steps today.

Bitcoin will chop you up with its volatility without mercy. One day it will make you feel doubt, fear, panic, and you’ll smash that sell button. The next day the price will soar, and you’ll feel elation, greed, and panic, and you’ll buy back impul­sively. Back and forth it goes.

Bitcoin preys on the human emotions in all of us. Some rare traders have the ability to control these emotions and time the market success­fully. However, a vast majority of investors that trade Bitcoin don’t control their emotions; they fall victim to them. They overtrade, lose money, pay hefty capital gains taxes, and are left with less bitcoin than if they had just bought and done nothing.

Beyond the emotional compo­nent, another reason trading bitcoin is a risky endeavor is histor­i­cally a majority of Bitcoin’s annual gains come from ~10 days every year. Said differ­ently, traders need to manage to time it right on 10 random days each year. 

The conse­quence of missing those 10 days has proven to be severe.

Take a look below at how much gains you missed out on if you missed the top 10 days 👇

As you can see, the oppor­tu­nity cost of missing those big green days is HUGE.

Further­more, ex-the top 10 days between 2013 — 2017, bitcoin was actually down annually 25%! ¹ So if you missed the 10 best trading days during those years, you actually somehow managed to lose money despite the massive gains in Bitcoin over that time period. 

The data here shows how the odds are stacked against you when you try to time this wild market. 

This is why the recom­mended strategy for most to survive Bitcoin’s high volatility is not to attempt to trade it but rather learn to save in Bitcoin and then contin­u­ously build your position over time.

Bitcoin is not for trading. It’s for saving.

To win in Bitcoin, you must learn how to mentally survive its volatility long enough in order to benefit from it.

Allow me to explain…

If there was no volatility, there would be no oppor­tu­nity. Bitcoin’s volatility results from its 21 million fixed supply and its fluctu­ating demand as it continues to gain adoption across the globe. 

Bitcoin is still at the begin­ning of its adoption cycle. Only a small percentage of the world’s popula­tion currently owns Bitcoin, let alone under­stands it. Many people are specu­lating on Bitcoin without fully compre­hending what they’re investing in. This volatility is a result of the infor­ma­tion asymmetry around Bitcoin today. Each day new people learn and buy Bitcoin for the very first time, and each day someone loses faith or simply needs to sell some. This results in short-term price spikes and sell-offs as the world collec­tively tries to make sense of this disrup­tive technology.

As knowl­edge spreads and adoption accel­er­ates, more and more people will begin to under­stand Bitcoin for what it is: a premier savings technology. The infor­ma­tion asymmetry will fade away, and the volatility will wane with it. The world will grow accus­tomed to it, learn to love it, and Bitcoin will become as normal as using the internet is today.

But today… Today, we are early.

Their misun­der­standing is our oppor­tu­nity. As the Bitcoin network continues to grow in demand, coupled with the fact that we know that there’s a fixed supply, that means only one thing can happen if adoption continues at this pace — the price of Bitcoin will continue to rise.

That’s exactly what we see in the data. When in doubt, zoom out. 

Take a look at the fantastic chart below. 

As you can see, even though there have been several major price drawdowns, bitcoin has recov­ered every time and has been trending in one direc­tion: up and to the right. 

The short-term volatility should be thought of as a distrac­tion as demand for Bitcoin continues to steadily increase. The winning move has always been to hold through the short-term volatility and keep buying Bitcoin as it continues to be adopted as the primary savings technology.

But as I mentioned before, this is no simple task. 

Volatility is hard. It’s easy to let emotions take control and make bad decisions when your life savings are involved. 

So what can you do?

If you are too overex­tended like the person below, you risk putting yourself in a stressful situa­tion that could lead to emotional decisions and poor outcomes.

It’s hard to sit on your hands and survive Bitcoin’s volatility when you risk losing every­thing if the price falls in the short term. That’s why it’s vital to tailor your Bitcoin alloca­tion to your own risk toler­ance, your own finan­cial situa­tion, and your own convic­tion level.

The good news is that an investing strategy has proven low-stress and profitable. It helps prevent emotional decisions benefiting from Bitcoin’s upward long-term volatility.

Dollar-cost averaging (DCA) is a tried and true way to build a position over time that can pay off in a big way. Not only can you accumu­late a lot of bitcoin with DCA, but it’s also low stress, so it keeps you in the game. It’s a strategy that helps you survive the volatility we touched on earlier and benefit from Bitcoin’s growth. 

DCA is a strategy where an investor buys a pre-deter­mined dollar amount of an asset at regularly sched­uled time intervals. 

For example — if an investor had $1,000 dollars, they could choose to DCA $100 worth of bitcoin every week for 10 weeks. 

Now DCA implies that you should start with a certain amount of dollars that you can invest, then buy daily/weekly/monthly until the funds are invested, and then you’re finished. However, with Bitcoin, the right strategy is to continue to save what funds you can indefinitely. 

That’s why I think a more appro­priate term for this strategy is a Bitcoin Savings Plan.

You should think of Bitcoin as a savings technology. It is a place to store wealth for many years in an asset that can’t be inflated away or taken from you by anyone. 

When asking yourself how much Bitcoin you should buy, what you really should be asking yourself is, “How much money can I afford to save this week/month/year?”

This strategy has been wildly profitable histor­i­cally. What may seem like a small invest­ment of $10/day can compound into tremen­dous wealth in the future. 

Check out the statis­tics if you have contin­u­ously saved in Bitcoin over the last 2 or 4 years: 

As you can see, a seemingly small amount of savings can go a long way with Bitcoin. 

An added benefit of this strategy is it allows you to take advan­tage of the short-term volatility and gives you peace of mind to accumu­late Bitcoin for the long term. 

Let’s use an example to help illus­trate this point: 

Meet Chad and Sally. 

• They both discovered Bitcoin on the same day back in May 2021.

• They both have the same amount of funds to invest, $27,000.

• They decide on two very different invest­ment strategies.

Chad decides to put every penny of his savings all in at once. 

Chad purchases 0.54 BTC for $27,000 at a Bitcoin price of $49,838. 

Sally decides to set up a Bitcoin Savings Plan buying $1,000 worth of Bitcoin every week.

6 months later, Sally has accumu­lated 0.62 BTC at an average Bitcoin price of $45,364.

The key takeaway from this example is that by using a Bitcoin Savings Plan, Sally acquired ~15% more Bitcoin than Chad by accumu­lating at a lower average entry price. 

Purchasing contin­u­ously over time, like Sally, allows an investor to take advan­tage of any downward volatility by steadily building a position as the asset falls in price. It takes human emotions out of the equation and helps investors pull the trigger when the price is low. All Sally had to do was stick to her plan. 

It’s impor­tant to also consider the differ­ences in the emotional journeys that both Sally and Chad experi­enced over these past 6 months.

If we think about Chad above, he put all his savings in at once. He then had to watch those savings decrease in value by nearly half as the Bitcoin price dropped. This is no doubt a stressful situa­tion. Chad would likely be watching the Bitcoin price daily, have trouble sleeping, and wondering if he had made a mistake. He might doubt his invest­ment and be worried that his savings were gone. This can lead to panic selling right at a time when he should be buying.

Then we consider Sally’s experi­ence. All Sally had to do was stick to her original plan. In fact, she was actually benefit­ting from bitcoin’s price drop.

If Bitcoin goes up, great! Sally already owns some. If Bitcoin goes down, great! Sally can buy Bitcoin at a lower price and lower her overall entry price. That’s why setting up automatic recur­ring purchases is a win-win strategy. Set it and forget it.

By now, you know that the winning strategy here is to survive the short-term volatility and hold Bitcoin for many years. Which of these investors do you feel were more likely to hold through the recent volatility, Chad or Sally?

Sally’s experi­ence was much less stressful than Chad’s. As a result, she was likelier to not be shaken by the volatility and survive to reap the rewards today.

The chart below puts the stress of each strategy in numbers.

This chart displays how long it took an investor of each strategy to break even from the cycle tops.

If you consider Chad, he just broke even on his initial invest­ment this month. He has been under­water and sweating it this whole time.

On the other hand, Sally broke even on her initial invest­ment months ago and has been in profit and feeling good about her investment.

A Bitcoin Savings Plan allows people the peace of mind to not sweat the short-term price action and think for the long term. All you have to do is set it and forget it, go outside, enjoy life, and let Bitcoin continue on its path to global adoption.

Bitcoin is a volatile asset, and attempting to time this market is a fool’s game that often ends in ruin. I hope this piece helped open your eyes to the oppor­tu­nity that lies before you. We are still incred­ibly early in Bitcoin’s adoption cycle, and the majority of the world is still sleeping on this amazing savings technology.

A strategy that encour­ages investors to contin­u­ously purchase Bitcoin on a recur­ring basis has proven to be effec­tive at growing a position, removing emotions from the equation, and lowering an average entry price, all while benefiting from the long-term price appre­ci­a­tion of Bitcoin.

The beauty of creating a Bitcoin Savings Plan is it’s a strategy that gives you peace of mind as you consis­tently accumu­late Bitcoin for years and years to come.

Here at Swan, we feel that this is the single best strategy to success­fully invest in Bitcoin. Create a Bitcoin Savings Plan at Swan and start saving for your future, your kids’ futures, and your grand­kids’ futures, today.