Backtested DCA strategy suggests selling Bitcoin at ‘extreme greed’ most profitable

Selling off a portion of Bitcoin (BTC) when the market is in a state of “extreme greed” is a more profitable investment strategy than just buying and hodling it, a Redditor’s analysis suggests.

Redditor u/skogsraw shared a March 21 analysis that found that there’s a higher return on investment (ROI) when using the Crypto Fear & Greed Index to dictate a dollar-cost averaging (DCA) strategy compared to a “vanilla” DCA strategy.

u/skogsraw’s “benchmark” strategy involved DCA’ing $100 into Bitcoin once a week, starting from March 17, 2018, to Sept. 9, 2023, which netted a 124.8% ROI.

The second strategy involved a tiered DCA plan, which would buy $150 of Bitcoin each week during times of “extreme fear,” $100 if in “fear,” $75 if in “neutral,” $50 if in “greed” and $25 if in “extreme greed.”

The third strategy was the same, except it would sell 5% of the accumulated Bitcoin each week if in the “extreme greed” zone. This turned out to be the most profitable strategy, with an 184.2% ROI, compared to the benchmark of 124.8% and the no-selling strategy of 140.1%.

The Redditor didn’t explain why they chose the dates they did but said it wouldn’t have been fair to choose a market bottom or top. The period covered at least two major bear markets and one bull market.

u/skogsraw, however, admitted the tests haven’t been cross-checked and emphasized that testing should also be conducted across more timeframes.

u/skogsraw’s findings also didn’t factor in Bitcoin network fees to trade, which often peak during times of “extreme greed.”

The findings are in line with the Crypto Fear & Greed Index’s view that market corrections typically occur when investors get too greedy.

u/skogsraw also ran two other strategies — “AlphaSquared Risk Model DCA” and “PI Cycle Top Indicator” — which produced ROIs of 385% and 332.4%, respectively.

Commentators, however, called into question the results of the two complex data-driven trading strategies.

The Crypto Fear & Greed Index score currently sits at 75/ 100 or “greed.”

It has fallen 15 points since March 5, when it notched 90/ 100 or “extreme greed” — its highest score since Feb. 20, 2021.