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Many of you have been asking for a back test using the Omega Score, one of my most popular and powerful Bitcoin indicators. So, I built a simple rules-based strategy that doesn't rely on predictions, but reacts to risk in real time. And the results are insane. It turned $1,000 into over 300 million and outperformed both buy and hold and dollar cost averaging by a factor of 10. So, in this video, I'll show you exactly how it works.
The Omega Score was one of the first metrics I developed to simplify Bitcoin market analysis. It's essentially a powerful composite indicator that brings together multiple crucial aspects of Bitcoin's market into a single actionable risk score. It combines five key onchain metrics, four technical analysis signals, two core mining data points, and three price statistics indicators, all normalized and merged into one unified number. It gives us a clear picture of market risk at any point in time. When the Omega score signals low risk, as seen with the blue colors, it suggests Bitcoin is undervalued and has been a historically great buying opportunity. On the other hand, when it's signaling high risk and painting red colors, it points to an overextended bull market where a correction or even crash is statistically more likely than not.
Now, to make this strategy as accurate and thorough as possible, we're going to start it as far back as December 2011. This is basically the start of Bitcoin's reliable price data history, and it gives us the full scope of Bitcoin data to work with. For this strategy, we're starting with a modest pot of $1,000, and we will not be adding a single extra dollar above this amount. We will simply use the profit we make from these trades to reinvest back in and not add in any additional. Obviously, throughout this, we're not accounting for taxes, fees, or slippage, as that becomes way too complicated. And when it comes to tax, it is certainly different for every individual.
Firstly, what would happen if we bought $1,000 of Bitcoin back at the start in 2011 and held it to today? Well, we'd be sitting on a massive pot of almost $33 million, which is absolutely bonkers to think about. Now, I've also run a scenario where say we didn't have $1,000 in 2011, but we decided to dollar cost average $20 a week into Bitcoin up until today. Again, the portfolio value is staggering with a total value at around $19 million today. So, these are our two hurdle rates to beat because as we know, each strategy is inherently psychologically harder to stick by than simply buying and holding or dollar cost averaging. So, it needs to compensate us accordingly by outperforming.
The strategy we're implementing today is relatively simple. For the majority of the time, we're simply going to be holding and not trading at all. In fact, the total number of trades over this 14-year period is only 52 because we're only looking for the most high conviction signals available. The rules are simple. When the risk score reaches or exceeds its highest risk threshold, which is the red colored territory, we enter a sell zone. At our first sell event, we start selling 3% of our position. And then for every subsequent cell event, we increase this by 1%. So for instance, the second cell would be 4%, the third cell 5% and so on. To allow us to capture as much upside as possible, we cap this at 25% so that we can't sell more than 25% in a single sell order.
The buying logic is similar, but arguably simpler. We buy back in with that available cash when the score enters its lowest risk zone. We then deploy 25% of the available cash every time we get a buy order signal and every subsequent buy is 25% of the remaining available cash. This is the opposite logic of our selling strategy because in this case we don't want to miss the bottom and would rather buy back in at a slightly higher initial price than completely miss the boat and watch Bitcoin rocket back up again. Remember we want to have more Bitcoin exposure than cash. So we will allow for inefficiencies like this to ensure that we maintain our exposure. Once we jump back out of this low-risk zone, we simply wait and hold and then rinse and repeat the strategy over and over again.
You can see that when we overlay the strategy onto the price chart, we trim our positions on the double peaks of 2013 and then buy back in at the bare market bottoms of 2015. We then regain and retrim our position at the peak of 2017 and buy back in at the beginning of 2019. Again, we trim our position in the bull market of 2021 and bought back in at the bare market bottom of 2022, which we are still holding this position to today. Opening up the strategy tester here, we can see that our total profit as of today would be over $300 million, all from the initial $1,000 invested. Now, this sounds crazy, but it really isn't. When you know that buy and hold netted you $33 million. The key to this strategy is that while Bitcoin's price rises exponentially, it does follow cyclical patterns of exuberance and pessimism, and it takes advantage of that.
Now, we're almost certainly not going to see the same level of exponential rise today as we have in the past due to the sheer size of Bitcoin's market cap. However, I believe this strategy will always work because as long as Bitcoin is traded by humans, our irrationality will continue to drive the market, resulting in the inevitable booms and crashes. While we don't know exactly when they'll happen, one thing is certain in markets. They will happen eventually. Being able to respond to the data in a rational, measured way is probably your biggest edge as an investor. While everyone else is panicking or becoming euphoric, you're doing the opposite. Staying grounded in what the onchain and probabilistic models are telling you. Remember, while history doesn't repeat exactly, it does rhyme. And learning to take advantage of that rhythm is one of the most powerful tools that can separate you from the rest.
If you enjoy this kind of strategy analysis, make sure to check out my video on the bull momentum gauge. Instead of trying to time tops and bottoms, we focus on measuring the strength of the bull market itself to assess whether it still has legs or if the momentum is fading. If you're serious about Bitcoin analysis, my full custom indicator suite is now live, built for investors looking to gain an edge through deep cycle signals and advanced onchain insights. It's available now through the link in the description where you'll also find my free newsletter. And if you found this valuable, hit the like button, subscribe to the channel, and turn on notifications so you never miss an update. And I'll see you all in the next one. [Music]