All-in: an analysis of smash buy versus DCA when buying Bitcoin

What’s the best way to accumulate bitcoin? While Bitcoin has outperformed most investment portfolios historically, your strategy for entering the market can significantly affect your results. 

The two most common approaches are:

1. Lump Sum Investing: Investing a large amount all at once (smash buy)

2. Dollar Cost Averaging (DCA): Investing smaller amounts regularly over time.

Over the years, many have recommended DCA over a lump sum investment. First, because they consider it safer for newbies likely to get shaken by Bitcoin’s wild volatility, second because newcomers are notoriously bad at timing the market, and lastly, because DCA is considered to deliver better performance over the long haul. 

While there is no disputing the first two claims, we want to properly assess the veracity of the latter. 

Most existing analyses compare the relative performance of DCA over lump sum investment over a specific date range, as in the example below showing the performance of a weekly DCA compared to a Lump Sum investment over the period 2016-2025 (Figure 1).

Figure 1: Lump Sum investment vs DCA since 1st January 2016

While there is some informative value to be gained by such analysis – here we see that Lump Sum overperforms, we believe it to be a weak metric for decision making purposes as it strongly hinges on the selected date range. 

Figure 2: Performance of Lump Sum vs DCA over 4-year investment period by Entry Date

As shown by the graph above (Figure 2) representing the performance of  weekly DCA & Lump Sum investments, over 4-year, by entry point: start near a market peak, and DCA often looks better; start near a bottom, and lump sum takes the lead. This inconsistency makes such methods less useful for decision making.

Ergodicity

This issue isn’t unique to Bitcoin—it’s a common flaw in financial analysis, rooted in the assumption of market ergodicity (1).

Ergodicity, a concept from physics pioneered by Ludwig Boltzmann, describes systems where the ensemble average (the average outcome across many scenarios at a single point in time) equals the time average (the average outcome of a single path over time). Boltzmann developed this idea to study gases, where the behavior of billions of particles could be approximated by statistical averages.

Due to the law of large numbers, he assumed that the idiosyncratic movements of individual particles would cancel out, making the ensemble average over time equivalent to the time average of a single particle’s trajectory. 

In an ergodic system, like flipping a fair coin, the distribution of outcomes after a million flips mirrors the distribution of a million people flipping a coin once—allowing the two averages to be used interchangeably.

But financial markets are rarely ergodic. The average return of an investment held for a year isn’t the same as the average return of 365 investors holding it for a day. Investing exhibits path dependency—your specific journey matters, shaped by the sequence of gains and losses.

Nassim Taleb illustrates this in Antifragile: Should a 6-foot-tall person who can’t swim cross a river that’s 5 feet deep “on average”? That average depth could hide a dangerous reality—3 feet at the start, 8 feet at the end. In finance, we often rely on similar ensemble averages, pretending risk and returns can be approximated by the average trading period.

This boils down to acting as if we could share our winnings and losses with millions of copies of ourselves living in parallel universes. Yet, in reality, we only get exposure to the singular trajectory of our own portfolio over time. Therefore, we should rather care about the time-average growth rate of our investment than the ensemble-average.

DCA vs Lump Sum: Analysis

To avoid such a pitfall, we analyzed every possible DCA and lump sum investment from January 1, 2016, to May 13, 2025 (2) and averaged their performance across all entry and exit points. We focused on weekly and monthly DCA with a minimum holding period of one year – resulting in about 4.7 million different portfolios for each investment frequency.

This approach shifts the focus from arbitrary entry and exit points—which can be cherry-picked to favor either strategy—to variables like investment frequency or duration. By doing so, we gain a clearer, more reliable understanding of each strategy’s performance, capturing the path dependency that traditional analyses often overlook.

While this method provides a robust framework, individual factors also play a role in practice. An investor’s age, risk appetite, and expected future cash flows relative to current savings can influence whether DCA or lump sum is more suitable. These considerations vary by individual and should be assessed on a case-by-case basis, but a fair comparison of the strategies offers a strong starting point.

Here is what we found:

Lump sum investing significantly outperforms DCA in terms of returns, but it comes with much higher volatility. DCA offers a smoother experience, though at the cost of lower gains. 

Notably, the win rates for both DCA strategies are low—only about 17.5% of the time does DCA outperform lump sum. While there are entry points where DCA shines, such as during market peaks followed by declines, these scenarios are relatively uncommon over the analyzed period, making lump sum the more consistent performer overall.

Interestingly, weekly and monthly DCA perform similarly. You might expect monthly DCA (fewer purchases) to have higher volatility and returns, but when averaging all possible portfolios, a few highly successful ones—driven by optimal timing—balance out the results for both frequencies. This highlights how timing can dominate outcomes, regardless of purchase frequency.

Looking at performance by duration, lump sum’s advantage grows the longer you stay invested (see Figure 4 & 5). If you have a long investment horizon, lump sum may be the better choice to maximize returns. 

Figure 4: Average Performance by Duration Monthly DCA vs LUMP SUM (+1-year holding period)

Figure 5: Average Performance by Duration Weekly DCA vs LUMP SUM (+1-year holding period)

To evaluate risk, we compared Sharpe ratios (6) (see Figure 6 & 7). The strategies are evenly matched on risk-adjusted returns, meaning neither is inherently better—it depends on your risk tolerance. If you’re confident in Bitcoin’s future and can handle volatility, lump sum maximizes returns. If you prefer stability, especially as a beginner, DCA can help you stay composed during market dips.

Figure 6: Annualized Performance Distribution & Sharpe Ratios, Monthly DCA vs LUMP SUM (+1 year holding period)

Figure 7: Annualized Performance Distribution & Sharpe Ratios, Weekly DCA vs LUMP SUM (+1 year holding period)

Consolidation Costs

With fees spikes becoming ever more frequent, many bitcoiners gained first-hand knowledge of another issue with on-chain DCA: as one creates a fresh UTXO (7) for each new purchase, one might end up paying exorbitant fees to spend his sats in the future, or even find out that some UTXOs are unspendable – when the transaction fees to spend exceed the amount it carries. 

To factor consolidation cost in the previous analysis we will make the following assumptions:

• Each new buy creates a new UTXO – on-chain DCA.

• All UTXOs will be consolidated at the end of the DCA period in a single Segwit V2 transaction

• On-chain fees for delivery are paid by the exchange, i.e. no cost to the user. (Bull Bitcoin’s policy)

• We can’t know what the feerate will be at the end of the DCA period, so we will represent the overall consolidation cost as a function of feerate.

Here is what we got for monthly and weekly DCA for $10 installments:

Figure 8: Monthly DCA Performance by Start Date with consolidation costs, $10 installments (+1 year holding period)

Figure 9: Weekly DCA Performance by Start Date with consolidation costs, $10 installments (+1 year holding period)

As you can see, on figure 8 & 9, with low-value installments consolidation costs can easily eat away most of your DCA performance, both in monthly and weekly frequency.

By comparison (Figure 10 & 11), with $100 installments, over long duration or in the case of low fee environment at the end of the investment period, performance is less dragged by consolidation costs:

Figure 10: Monthly DCA Performance by Start Date with consolidation costs, $100 installments (+1 year holding period)

Figure 11: Weekly DCA Performance by Start Date with consolidation costs, $100 installments (+1 year holding period)

Conclusion: DCA over Liquid & LN

When building one’s stack, one should hope for the best and prepare for the worst. Working upon the assumption that fee rate in the future will be low is a very bad idea: at the end of the day, if you are long Bitcoin, it’s because you think adoption will continue, which entails, magic scaling solutions aside, that demand for blockspace will increase. 

In the previous part we demonstrated that Lump Sum almost always performs better, but that  on a risk-adjusted basis, DCA and Lump Sum present with similar performance. Put differently, Lump Sum gross performance is markedly higher, especially over the long-run, but comes with increased volatility, and DCA’s benefit largely lies in the fact that it is psychologically easier to implement. 

Now that we have also included consolidation costs, we need to acknowledge that low installments on-chain DCA come with significant cost: a large loss in performance compensated by nothing, it’s just a waste of sats.

Therefore, should you feel inclined to set up a DCA, or recommend it to a friend or family member, we would strongly advise you to not opt for on-chain DCA, unless you have a very long time-horizon and proceed with fairly large installments (at least $100 per buy). 

The heuristic we used at Bull Bitcoin so far, preventing on-chain buys of less than a 100k sats – or ~$100 at the time of writing, seems to be empirically validated by the present analysis. But, as there is large demand for DCA options, we also decided to develop and offer a suite of tools that will allow you to set up your DCA in the best way possible.

Using Bull Bitcoin’s wallet (or any other wallet supporting Liquid and Boltz swaps (8) in conjunction with the Bull Bitcoin platform, you can simply DCA over Liquid, where fees are ridiculously low, and then directly swap your L-sats for on-chain sats, creating a fresh UTXO once you reach a high enough amount. As suggested by the present analysis, creating UTXO carrying less than 100K sats might come at great cost in the future. We will even advise you to set a higher threshold to further minimize the cost of consolidation in a future that could be marked by frequent periods of high fees. 

Alternatively, you can also DCA over LN and then move the funds on-chain, either through a swap service or by closing channels, when you reach your predefined threshold – again, preferably greater than 100k sats. 

DCA can be a powerful solution to accumulate sats when you don’t have capital lying around and only get recurring cash-flows, however, if you believe Bitcoin is poised to replace all fiat money and demonetize most asset classes, perhaps it's time to stop playing it safe and ride out the volatility to seize this once-in-a-lifetime opportunity. 

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(1) https://arxiv.org/abs/1101.4548

(2) We discarded the first years of BTC for the present analysis as the return and vol profile is likely to be very different from the future, and could thus skew our conclusions.

(3) Standard Deviation — it measures the dispersion of results around the mean/average.

(4) Compound Annual Growth Rate.

(5) Measures the number of times a strategy outperforms the other.

(6) Sharpe Ratios measure risk-adjusted returns, that is returns corrected for volatility

(7) If you are not familiar with the concept of UTXOs & consolidations, you can check this article or this video

(8) Aqua Wallet, Breez, etc.