Investing in Bitcoin: A Common Mistake and a Better Approach

For years, I have invested in Bitcoin by repeatedly buying it in small, scheduled purchases and then ignoring it for as long as possible. This approach has served me well, and I'm not alone in my success. However, a recent study by Morningstar highlights a common mistake that many investors make when it comes to investing in Bitcoin: buying spot Bitcoin exchange-traded funds (ETFs) and losing money in the process.

The Average Investor's Loss

According to the Morningstar study, the average investor dollar allocated to spot Bitcoin ETFs lost 5.8% annually from January 2024 through June 2026, while those funds returned 8.5% a year on aggregate. This means that investors who bought into these funds were not only failing to keep pace with the market, but were actually losing money in the process.

Why Dollar-Cost Averaging Works

So, if I had $1,000 in hand today and I wanted to invest it in Bitcoin, here's how I'd do it without underperforming. I would make five separate scheduled purchases of $200 at intervals of one or two weeks, so the capital would be allocated in a maximum of two months. This approach is known as dollar-cost averaging, and it's a strategy that has served me well in the past. By making regular purchases over time, I can help to cope with the volatility of the Bitcoin market. When the coin's price fluctuates, I don't have to do anything at all to get some upside from it. This approach is also psychologically useful, as it helps me to stop thinking about Bitcoin as a crypto lottery ticket that could explode in value overnight and make me rich.

The Downside of Dollar-Cost Averaging

However, there is a downside to dollar-cost averaging that's worth knowing. Research from Vanguard suggests that a lump-sum purchase was superior to spread-out purchases as much as 73.7% of the time. This means that, in some cases, making a single large purchase may be a better strategy than spreading out your investments over time.

Why I Still Prefer Dollar-Cost Averaging

Despite the potential benefits of lump-sum purchases, I still prefer dollar-cost averaging. In my experience, the fastest way to lose money with Bitcoin is to get scared into selling your position during volatile and unpredictable periods where it is temporarily in a downtrend. Believing that Bitcoin is a lottery ticket means being more willing to let it go and move on to the next ticket when you should be buying more while it's cheap and resolving to hold it for years.

The Importance of Holding for the Long-Term

Investors who bought $1,000 of Bitcoin right at the October 2025 all-time high near $126,080 have only $615 as of September 2 based on the recent price of about $77,300. Making five spaced purchases would not have avoided that loss, though it would have mitigated it. This highlights the importance of holding onto your Bitcoin for the long-term, rather than trying to time the market. Every dollar of the coin's return to its holders depends on someone else paying more for the same amount of it later. This can happen because the coin's supply is being eked out more and more slowly, and because there's a limit of 21 million coins that can ever exist. Therefore, the more patient (or stubborn) you are, the better your return is likely to be.

What to Watch Next

As the Bitcoin market continues to evolve, it's essential to stay informed about the latest developments and trends. By following a disciplined investment strategy, such as dollar-cost averaging, and holding onto your Bitcoin for the long-term, you can increase your chances of success in the market. In addition, it's worth noting that The Motley Fool Stock Advisor analyst team has identified what they believe are the 10 best stocks for investors to buy now, and Bitcoin wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years, and it's worth considering investing in them as part of a diversified portfolio.