How to Maximize Your Bitcoin Holdings: Strategies for Building Your Stack

If you’re a Bitcoiner you’ve probably asked yourself "how can I own more bitcoin?”. With various accumulation strategies available, it might be challenging to determine which is the best approach to stack more sats.

This article explores different approaches to ensure investors can make informed decisions about the best way to reach their Bitcoin hodl goal.

By examining dollar-cost averaging (DCA) vs lump sum investment, HODLing vs trading, and converting retirement accounts to bitcoin or gaining exposure through Bitcoin ETFs, readers will have the knowledge they need to create a comprehensive plan based on their preferences and personality.

Dollar-Cost Averaging (DCA) vs Lump Sum Investing

What is Dollar-Cost Averaging?

Dollar-cost averaging involves investing a fixed amount of money in bitcoin at regular intervals. This method spreads investment over time, generally reducing the impact of market volatility.

The regular intervals of a DCA strategy can range from monthly purchases to much smaller time intervals such as daily or hourly.  

Here’s how a DCA strategy might work: Investor A decides to purchase $200 of bitcoin every month. Over five months, regardless of price variations, the investor converts $200 into bitcoin monthly for a total of $1,000.

If the Bitcoin price is higher in any given month, the investor is happy about their earlier purchases. If the Bitcoin price is lower, the investor is satisfied in knowing he/she will be getting a better deal this month than the previous.

Pros and Cons of DCA

Pros of DCA:

• Mitigates Risk: Reduces exposure to market fluctuations.
• Emotional Stability: Encourages investors to avoid impulsive decisions.
• Simplicity: Easy for beginners to implement.

Con of DCA:

• Opportunity Cost: Potentially lower returns if bitcoin’s prices surge.

What is Lump Sum Investing?

Lump sum investing involves putting a large amount of money into bitcoin all at once. This approach can capitalize on immediate market conditions but also bears higher short-term risk.

For example, Investor B may also have $1,000 to invest. Rather than averaging $200 per month like Investor A, Investor B makes a single, $1,000 purchase.

If bitcoin continues to rise in USD price, Investor B will feel great and will have more bitcoin than Investor A. But if the price falls for the next five months, Investor B may experience more pain and frustration, and would end up with less bitcoin than Investor A.

Pros and Cons of Lump Sum Investing

Pros of Lump Sum Investing:

• High Immediate Returns: Maximizes gains during upward trends.
• Instant Ownership: Complete exposure from the start.

Cons of Lump Sum Investing:

• Higher Risk: Vulnerable to significant market dips.
• Emotional Stress: Large investments may lead to anxiety due to price volatility.

Which Strategy is Better?

Neither DCA nor lump sum investing is definitively ‘better’. Both strategies have merits depending on market conditions. The maxim “know thyself” rings true.

How would you respond if bitcoin dropped 10% after a big purchase? Are you comfortable continuing to DCA even as Bitcoin’s price continues rising? If you are undecided between these scenarios, a hybrid strategy may be optimal, combining the initial lump sum with subsequent DCA investments.

HODLing vs Trading

HODLing (Holding On for Dear Life)

HODLing involves holding on to bitcoin for the long term, banking on its expected future price appreciation. When the price soars in a bull market, you still don’t sell your Bitcoin. And in the depths of the bear market, you also continue holding.

Where did the term “HODL come from”? It originated from a misspelling of the word “hold” on a Bitcoin forum post. The term has become a staple term for those interested in Bitcoin, symbolizing steadfast ownership despite Bitcoin’s price volatility.

Pros and Cons of HODLing

Pros of HODLing:

• Long-term Gains: Benefits from historical appreciation trends.
• Lower Costs: Minimizes transaction fees.
• Favorable Tax: Less capital gains tax for long-term holdings.

Con of HODLing:

• Missed Opportunities: Foregos potential short-term trading profits.

Trading

Trading involves actively buying and selling bitcoin, aiming to profit from short-term price movements rather than bitcoin’s long-term upward volatility.

Types of Trading:

1. Day Trading: Buying and selling within the same day.

2. Swing Trading: Holding positions over several days or weeks.

3. Scalping: Making numerous small trades for minor profit margins.

Pros and Cons of Trading

Pros of Trading:

• Short-term Profits: Gains from frequent market fluctuations.
• Market Engagement: Continuous learning and involvement.

Cons of Trading:

• Higher Risks and Costs: Increased exposure leads to potential losses and higher fees.
• Time-intensive: Requires constant monitoring and decision-making.

Which Approach Suits You?

Factors like time commitment, knowledge level, and risk tolerance will influence the choice between HODLing and trading. Most people do not have the time, expertise, or flexibility to trade on a short-term basis, so HODLing tends to have better results.

Get Exposure to Bitcoin Through a 401k/IRA

Diversifying retirement accounts with bitcoin can provide significant growth potential for a portfolio.

You can see how bitcoin can improve your own portfolio’s Sharpe Ratio (a risk/reward measurement) via Nakamoto Portfolio. Simply enter your portfolio and see how it would fare with various BTC allocations.

Conversion to a Bitcoin IRA

Funneling your IRA funds into bitcoin allows direct ownership of bitcoin within a retirement account. One good option is Unchained’s IRA product, which allows individuals to remain in control of their keys. This eliminates the counterparty risk that exchanges create and ensures that you always know where the asset is.

Gaining Exposure via Bitcoin ETFs

If the additional fees of an IRA product like Unchained’s don’t seem worth it, spot bitcoin ETFs offer price exposure to bitcoin through traditional brokerage accounts. Just be sure that you aren’t paying more in the more subtle ETF fees to BlackRock and others than you are to bitcoin IRA providers.

There are many different ETFs to choose from. Fidelity’s (FBTC) and BlackRock’s (IBIT) ETFs have seen the largest inflows since their launch in January 2024, but Fidelity is the only company that has their own custody solution. Almost all other ETFs hold their bitcoin with Coinbase.

Because of this, more security-conscious ETF buyers who are unable to self-custody their bitcoin for whatever reason have opted for Fidelity’s ETF.

Conclusion

Maximizing your bitcoin holdings comes down to what will work best for you. It requires an approach tailored to your individual goals and risk tolerance.

Whether you prefer a DCA or lump sum strategy, whether you want to HODL or trade, and whether you want more bitcoin exposure in your retirement accounts through self-custodied bitcoin or with bitcoin exposure through ETFs are all very personal decisions.

Understanding these strategies helps you make the right decision for you so that you can continue to increase your bitcoin stack.