Over the Past 3 Years, Bitcoin Is Up 225% and the Nasdaq Is Up 109%. Here's the 1 Takeaway Lesson for Crypto Investors.

In this news:

Key takeaways

Bitcoin gained 225% over the past 3 years compared to 109% for the Nasdaq.
Missing Bitcoin's 15 best trading days turns a 225% gain into an 11% loss.
Investors should maintain consistent exposure rather than attempting to time the market.

If you zoom out and take a look at the performance of Bitcoin (BTC -0.37%) over the past 3 years, it's hard not to be impressed. Over that time period, Bitcoin is up a whopping 225%. By way of comparison, the Nasdaq is only up 109%.

In other words, investors could have made a lot more money investing in Bitcoin than by investing in tech stocks over the past 3 years. But there's a catch.

Bitcoin's opportunity cost

In the case of Bitcoin, the catch is something that digital investment firm Grayscale refers to as “out-of-market” opportunity cost. As it turns out, investors who were out of the crypto market on days that Bitcoin zoomed higher saw considerably lower returns at the end of the 3-year period. In fact, missing just a few of Bitcoin's best days had a significant impact on long-term performance.

As Grayscale found out, Bitcoin's best trading days over the past 3 years accounted for the lion's share of its returns. If you missed Bitcoin's 5 best trading days over the past 3 years, then Bitcoin's returns slipped to 95%. If you take away Bitcoin's top 10 trading days, then its returns plummeted to just 27%. And if you take away Bitcoin's 15 best trading days? Well, you're suddenly looking at a loss of 11%.

That's not to say that the Nasdaq's gains also were not concentrated around a few of its best trading days. But the Nasdaq was not nearly as volatile as Bitcoin and not nearly as dependent on a few spike days. In other words, price appreciation was much smoother over time. As Grayscale found out, you needed to take away the Nasdaq's 25 best trading days before returns started to dip into negative territory.

Takeaway lesson for investors

The big takeaway for investors is that, if you're planning to buy Bitcoin, then you should aim for consistent, long-term exposure. Buy and hold, and wait for Bitcoin to soar higher.

In short, trying to time the market is a major mistake. There will never be the “right moment” when Bitcoin's volatility is magically going to subside or the macroeconomic outlook is going to brighten dramatically. By the time you are done waiting, you will likely have missed Bitcoin's upward spike days.

As Grayscale points out in its research, it's those “powerful upside bursts” that make Bitcoin... Bitcoin. Yes, Bitcoin is highly volatile. But it's exactly that volatility that presents the opportunity for Bitcoin's massive upside gains. But you need to be in, not out of, the market for that to happen.

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