Bitcoin (BTC 2.62%) recently hit a new all-time high above $125,000, so it's perhaps no surprise that a growing number of crypto investors now think that Bitcoin could eventually hit a price of $1 million. For example, Coinbase Global CEO Brian Armstrong recently predicted that Bitcoin could hit the million-dollar mark within just a few years.
There's just one problem here: Most people don't have $125,000 lying around that they can quickly deploy into a millionaire-maker Bitcoin investment. But that's OK, because there's another path to millionaire-status that is just as powerful: dollar-cost averaging (DCA).
What is dollar-cost averaging?
At its core, a DCA strategy just means that you are investing a set amount of money each week or month, regardless of what's happening in the overall market. Think of it as a sort of "set it and forget it" approach to investing. This approach takes the emotion and psychology out of investing, and ensures that you are always buying more of an asset when it is cheap, and buying less of an asset when it is expensive.
Image source: Getty Images.
While DCA strategies are typically used in the stock market, they can also be adapted for the crypto market. All you have to do is decide to invest a fixed amount of money each month into Bitcoin, regardless of where it is currently trading. Admittedly, that's harder to do than it sounds, because Bitcoin has historically been a very volatile asset.
Strategy's DCA strategy
A good example of a DCA strategy at work involves Strategy (MSTR 0.73%), the largest corporate holder of Bitcoin in the world. Currently, Strategy holds 640,031 BTC, worth a combined $80 billion.
This Bitcoin has been accumulated over a span of five years, dating back to August 2020, when Strategy (then known as MicroStrategy) announced its innovative Bitcoin treasury company strategy. Ever since then, Strategy has been finding more innovative ways to acquire Bitcoin on the cheap.
Every week, Strategy typically announces a massive new Bitcoin buy:
- On Sept. 29, Strategy acquired 196 BTC for $22 million.
- On Sept. 22, Strategy acquired 850 BTC for $100 million.
- On Sept. 15, Strategy acquired 525 BTC for $60 million.
The list goes on and on. On the Strategy website, the company lists a full rundown of all Bitcoin buys dating back to Aug. 10, 2020. All told, there are 81 total Bitcoin transactions listed. What started as a monthly DCA program has now become a weekly DCA program.
Does the math work?
In the stock market, a typical DCA strategy goes something like this: invest $500 per month into the stock market, rack up annual returns of 10%, and become a millionaire in 30 years.
In the crypto market, an adapted DCA strategy goes something like this: invest a few hundred bucks per month into Bitcoin, rack up annual returns of 40% or higher, and become a millionaire in 10 years.
The math checks out. At the end of the 10-year period, a modest recurring investment of just $585 per month will have been transformed into $1 million, thanks to the power of compounding.
Key assumptions
Of course, there's a very big assumption here that Bitcoin will continue to churn out mind-blowing annual returns for the foreseeable future. That's hardly guaranteed. After all, Bitcoin is only up 30% this year. If this becomes the "new normal" for Bitcoin, you'll either have to extend your investment horizon, or decide to ante up more money each month for your recurring Bitcoin buy.
However, maybe asking for 40% annual returns is not asking too much. Historically, Bitcoin has been capable of churning out triple-digit returns with impressive regularity. In 2023, for example, Bitcoin soared by 157% and was the top-performing asset in the world. In 2024, Bitcoin skyrocketed by 125% and was again the top-performing asset in the world.
Last year, WisdomTree ran the numbers, and found that Bitcoin was the top-performing asset in the world in nine of the past 12 years. And it wasn't even close. There simply are no other assets capable of generating triple-digit returns like Bitcoin.
Past performance, of course, is no guarantee of future performance. However, Bitcoin now has a long historical track record of outperformance, so that should provide some peace of mind.
Bitcoin definitely has the potential to help you retire as a millionaire, as long as you're willing to commit to a long-term strategy of dollar-cost averaging. If Bitcoin can turn in an encore performance over the next decade, a small investment each month could pay off big later.
