Study of a BTC Strategy Combining DCA with the Fear and Greed Index
This analysis examines a hybrid investment approach for Bitcoin that merges Dollar Cost Averaging (DCA) with sentiment analysis via the Fear and Greed Index. The goal: determine whether filtering purchases by market sentiment improves long-term results.
The Two Strategies
Dollar Cost Averaging (DCA)
DCA means investing the same fixed amount at regular intervals regardless of market conditions. It reduces timing risk, smooths out volatility impact, and requires no ability to predict price direction. In this study, $100 is invested every week without exception.
DCA + Fear and Greed Filter
The same $100 weekly investment, but only executed when the Fear and Greed Index exceeds 50 (i.e., when market sentiment is in “greed” territory). During periods of fear, no purchase is made.
The Fear and Greed Index
The Fear and Greed Index from alternative.me combines five indicators into a single score from 0 to 100:
| Indicator | Weight |
|---|---|
| Volatility | 25% |
| Market momentum / volume | 25% |
| Social networks | 15% |
| Bitcoin dominance | 10% |
| Google Trends | 10% |
Higher values indicate market euphoria; lower values indicate fear and capitulation.
Methodology
The study analyses data from February 2018 through November 2022, using Python with pandas, yfinance, and Plotly for data collection and visualisation.
Both strategies invest the same total amount ($8,100) to allow a fair comparison.
Results
Pure DCA Strategy
| Metric | Result |
|---|---|
| Purchases executed | 248 |
| Total invested | $8,100 |
| BTC accumulated | 0.767 |
| Net profit | $6,283 |
DCA + Fear and Greed > 50
| Metric | Result |
|---|---|
| Purchases executed | 81 |
| Total invested | $8,100 |
| BTC accumulated | 0.628 |
| Net profit | $3,680 |
Conclusion
Counterintuitively, the pure DCA strategy significantly outperformed the sentiment-filtered approach.
The key reason: since November 2021, the Fear and Greed Index has not exceeded 50, meaning the combined strategy stopped making purchases entirely during that period — missing all accumulation during the bear market, which is historically one of the best times to buy.
This suggests that mechanically avoiding purchases during fear periods may actually reduce long-term returns. Buying during fear — not avoiding it — is what DCA is designed to do.
This analysis is not investment advice. Always apply independent judgment before making financial decisions.