A Reddit user, u/skogsraw, has conducted an analysis suggesting that selling a portion of Bitcoin (BTC) when the market is in a state of “extreme greed” can be a more profitable investment strategy than simply holding onto it. The analysis compared the returns on investment (ROI) when using the Crypto Fear & Greed Index to dictate a dollar-cost averaging (DCA) strategy versus a “vanilla” DCA strategy.
The “benchmark” strategy involved investing $100 into Bitcoin every week from March 17, 2018, to Sept. 9, 2023, resulting in a 124.8% ROI. The second strategy was a tiered DCA plan, buying $150 of Bitcoin each week during times of “extreme fear,” $100 during times of “fear,” $75 during times of “neutral,” $50 during times of “greed,” and $25 during times of “extreme greed.”
The third strategy was the same as the second, but it involved selling 5% of the accumulated Bitcoin each week during the “extreme greed” zone. This strategy turned out to be the most profitable, with an ROI of 184.2%, compared to the benchmark strategy’s 124.8% ROI and the no-selling strategy’s 140.1% ROI.
It should be noted that u/skogsraw did not explain why they chose the specific dates for the analysis, but they mentioned that it would not have been fair to choose a market bottom or top. The analysis covered at least two major bear markets and one bull market. u/skogsraw acknowledged that the tests have not been cross-checked and emphasized the need for testing across more timeframes.
The analysis did not take into account Bitcoin network fees for trading, which tend to be higher during times of “extreme greed.” The findings align with the Crypto Fear & Greed Index’s belief that market corrections often occur when investors become too greedy.
u/skogsraw also tested two other strategies, the “AlphaSquared Risk Model DCA” and the “PI Cycle Top Indicator,” which resulted in ROIs of 385% and 332.4%, respectively. However, some commentators questioned the validity of these complex data-driven trading strategies.
Currently, the Crypto Fear & Greed Index score is at 75/100, indicating “greed.” This is a 15-point decrease from its highest score of 90/100, indicating “extreme greed,” on March 5, 2022.
In related news, the CEO of Trezor, a cryptocurrency wallet, stated that Bitcoin ETFs make Coinbase a prime target for hackers and government scrutiny.