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Perhaps the best time to buy Bitcoin might be on a blue day


You might be baffled by the title of this article.


What exactly is a blue day?


Bear with me for a while as I'm going to go through multiple things before I come to that.

But trust me, it's worth the journey.


First of all, I'm sure most of us are very used to the concept of DCA (Dollar Cost Averaging). In fact, there is a famous article out that which proved that timing the market is almost always inferior compared to DCA.


There is no doubt about that. No one should absolutely try to time the bottom and only make investments at the bottom. But what if we could slightly alter the mechanism of DCA to provide us better returns without trying to time the market?


This is the concept of EDCA- Enhanced Dollar Cost Averaging.


What exactly is EDCA?


EDCA is a modified version of DCA where you don't just simply make fixed contributions to your investment portfolio on a regular basis. You adjust your contributions according to how the market is. A fixed percentage is decided and is either added or removed to your regular contributions deepening on how the return in the month is. For instance, say your standard monthly investment is $1000 and you have decided on a fixed percentage of 20%, if the market went up in the month, you invest $1000 -$400 =$600, if it has gone down, then you invest $1400.


The whole idea behind this EDCA is to build a better mousetrap so that you can take advantages to buy more when the market is down and hence enhancing your eventual terminal wealth. In fact, there is a very good research article that is published on this concept.

So what are the findings? What are the conclusions drawn from all the simulations of this concept?

The results are rather positive. Results indicated that the EDCA strategy reliably outperforms the DCA strategy about 90% of the time and almost always results in greater terminal wealth. While this strategy works well for most asset classes (market funds, bonds, equities), the magnitude of enhancement is mostly only meaningful for equities.

At this point of time, you might be thinking that this runs contrary to the concept where keeping money on the sidelines results in less returns over a long period of time since the market is always up on a long term trend.

Well, it turns out that most years between 1926 and 2008 have between 5 and 9 months with positive returns. There's never a year where all 12 months have positive returns (though that happened in 2017- which stretches beyond the data period of the research) hence there is always ample numbers of "down-months" to invest.


Based on the research data, it's also shown that about 42% of positive months are followed by negative months. This indicates little risk of your money being on the sideline.


So, EDCA is great! But wait a minute, what has it got to do with Bitcoin then?


Just like what you can expect in the world of crypto, there is always a slightly tweaked version of every single investing technique in equities that is made for crypto.


This is where the rainbow chart comes in.



This rainbow chart is simply a chart showing the price history of BTC in the logarithmic scale vs time. The rainbow is created by moving the BTC band up and down by a certain factor to indicate the cycle highs and lows. Red typically highlights that the market is in a maximum bubble territory while blur indicates it's a fire sale.


Depending on which colour band the current price point is, you assign a certain factor/percentage to modify in your regular investment amount.



Say you take the above chart as reference and your standard monthly investment is $1000, you will invest $2500 when the price point is in blue.


Based on backtesting results on historical BTC price data, this Rainbow-Weighted Averaging (RWA) investing technique actually outperforms DCA 96.8% of the time by an average of 35.3% greater returns! That's certainly very strong evidence of outstanding performance.


And in case you are still baffled by the title of the article, we happened to be on the blue portion of the rainbow right now.


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