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” is a more profitable investment strategy than simply holding onto it. The analysis compared the returns on investment (ROI) of a dollar-cost averaging (DCA) strategy using the Crypto Fear & Greed Index, with a “vanilla” DCA strategy.
The benchmark strategy involved investing $100 into Bitcoin every week, starting from March 17, 2018, until Sept. 9, 2023, resulting in a 124.8% ROI. The second strategy was a tiered DCA plan that would buy $150 of Bitcoin each week during times of “extreme fear,” $100 during “fear,” $75 during “neutral,” $50 during “greed,” and $25 during “extreme greed.”
The third strategy was the same as the second, but it would also sell 5% of the accumulated Bitcoin each week if the market was in the “extreme greed” zone. This strategy turned out to be the most profitable, with an ROI of 184.2%, compared to the benchmark ROI of 124.8% and the no-selling strategy ROI of 140.1%.
The Redditor did not provide an explanation for the chosen dates but stated that it would not have been fair to choose a market bottom or top. The testing period covered at least two major bear markets and one bull market. However, 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, which tend to increase during times of “extreme greed.” The findings align with the Crypto Fear & Greed Index’s observation that market corrections often occur when investors become overly greedy.
u/skogsraw also tested two other strategies, the “AlphaSquared Risk Model DCA” and the “PI Cycle Top Indicator,” which produced ROIs of 385% and 332.4%, respectively. However, commentators have questioned the reliability of these two complex data-driven trading strategies.
Currently, the Crypto Fear & Greed Index score is 75/100, indicating “greed.” This is a 15-point decrease from March 5, when it reached 90/100, signifying “extreme greed” – its highest score since Feb. 20, 2021.