Topic: My bitcoin investment strategy - fixed allocation - listening to ALL your parts (Read 5573 times)

Hi Alex,

I really like your investment strategy. I'm always impressed by people who go all in and have succeeded in making their first decent capital. You also have been carefull by taking out your intitial investment and you have no intention to use that money to buy bitcoins again.

But indeed if bitcoin fails you will lose most of your capital at this moment. Is that something that you are willing to risk? Or if bitcoin is cut in half and you lose half of your capital, is that acceptable for you? If yes then all is well.

Your investment strategy to sell 1 btc per week so that you have an income, seems very solid to me. I can imagine that this would give you the ability to invest more time in your career or relationship (which is great ). This way if bitcoin ever fails, and most of your capital shrinks to zero, you would still have had great benefit from bitcoin. And if bitcoin succeeds you will still have a lot of coins left to get rich.

I like it very much. It's simpler as my strategy, seems to be more secure as you will definitely have profited from bitcoin if it fails, as well as more potential to become rich if it goes to the sky as you will have sold less coins percentage wise, as I did.

One thing I don't like about the idea of selling 1 btc per week is that you will also be selling when the prices are cheap and depressed (like in 2011 after the crash around £1.50 or £5). Ofcourse this balances out over time with other periods where you are selling 1 btc per week when the prices are high and overvalued. So on average you would be selling for a fair price.

If you would want to sell only when the price is relatively high, you could for example sell 1 btc per week, but only when the price is above the 200 day moving average (which is today around $40). Ofcourse this means that you would not be able to sell btc when price is below 200 day moving average (like in 2011 after the crash around £1.50 or £5) and thus you would not have an income then. And if price were to go to zero from here you will probably have taken out a lot less.

I would say, trust your own feelings. Only you can know what's best for you. And I have no clue about most things that are important to you.

Thank you so much for sharing. Your post was very inspirational to me.

This srategy creates a small profit and the more volatility there is the more profit it makes in the long run but its not for the impatient. Its not a get rich quick scheme.

If you want to trade this automatically to never miss any rebalancing opportunities even when you are sleeping then try to use something like the balancer bot: https://bitcointalksearch.org/topic/goxtool-bot-portfolio-rebalancing-181584

Wauw, that's a very good critique. I needed some days to think about it. Thank you for doing these calculations, I never did them before.

I'm not sure what to say. I'll give it a try. Eventhough profits are not higher than a buy and hold, volatility of the portfolio is strongly reduced. This is because in this example you are only 40% exposed continuously. Meaning that when bitcoins goes up, your portfolio goes up only half as quick, and when bitcoin goes down, your portfolio only goes down half as much. If you were to never rebalance, and let the 40% just grow (up to say 90% of your portfolio) and then shrink (down to say 5% of your portfolio), your portfolio would be more volatile.

I'm still thinking this technique should also give more profit if market goes sideways, so end price the same, but in the meantime it has gone up and down several times. I believe this because for example on the day of the big crash I bought in a lot of coins around $70, since the crash went so fast my last sale price of coins was 2 days before that around $180. I bought back about the same amount of coins that I had sold during the big rally up to $266. I resold these coins into the recent rebound up to $160, for an average price of $120. So my technique created an extra profit a buy and hold strategy would not have given.  

However, I might totally be missing something. I do realize that if I had simply buy and hold, I would have more capital today. But I thought this was because bitcoin prices are still 10 times higher as my buy in price.  
Like in your simulation I'm doing that trading on a daily basis. From my rough calculations I will indeed have no profit if bitcoin prices go back to my original buy in price around $15. On first impression I agree with your conclusion, it's not worth it if your total gains are the same. Better buy and hold then and take the extra volatility with it.

I'm confused. I think I start to favor the buy and hold and locking in profits indefinitely when price milestones are reached.

I have enjoyed reading the ideas about your investment strategies. I am not sure that they will work better than buy and hold in Bitcoins, as a day rise or fall can be above 20%, 30% or 40%. This means that target ranges of $100-$300 would leave you unable to profit should the price go below $100 or above $300. I think both are inevitable within the next 1-12 months - no idea which will happen first.

I have used a buy and hold investment.

I went as all in as I could (I had fewer assets than most other people here so it was not too risky. I had about £11,500 of which I wanted to keep around £2000 as a safety net as my current earnings are fairly low. I invested £9000 in MtGox at an average of £10-12 (plus £275 @ £3.60 on Bitmarket.EU now lost) 20 Months later I sold £10500 worth of Bitcoin at £40-£43 average. I now have my initial investment back and a profit from Bitcoins. I could have waited and sold out today at £93 or even at £170 at the peak, conversely I could have sold out at after 6-9 months for £1.50 or £5 after 1 month and lost lots of money.

I believe in the long term Bitcoin will keep rising and people who invested at £170 will easily be able to double there money or more if they have the patience to wait.  I also believe that me holding the vast majority of my assets in Bitcoins is possibly unwise, hence I was interested by your thread.

I was thinking of using a strategy of selling 1 BTC per week for the foreseeable future to generate some income, and slowly reduce my Bitcoin risk. I can still day trade occasionally and  If I can get good enough then I could possibly still keep hold of all my BTC's anyway as I would only have to earn 1 BTC profit per week. However this takes time, patience and luck that might be better served invested in my career, my relationship or completing the renovation of my partners house.

Is this a sound idea?

I don't see how your strategy locks in profits. It's a zero sum game on the way down as I see it. Where am I missing it. Here is how I looked at this:

Imagine for a moment that you have $1000 to hold & invest. And that the price of bitcoin goes from $10/BTC to $100/BTC back to $10/BTC.
Assume price increments/decrements by $2 daily.

Initially, you bought $400 in bitcoins at $10/BTC, or BTC40. And hold the rest of the $600.
By the time the price peaks at $100/BTC, you have sold bitcoins so that your capital is now ~$2546 (about BTC10 and the rest in dollars)
But as it goes back down to $10/BTC, you return back to a total capital of ~$1000. (no gains got locked in) One caveat is that in the excel spreadsheet, it did show a tiny gain of $44 (or about 4.4%). I'm not sure if this was a miscalc, or an actual gain. But it's trivial considering the range the portfolio went through. It's not good that the 150% gain was not more significantly locked in. Perhaps, you have some other rules you use.

1. When do you make a correction to your exposure? I did them here on a daily basis.
2. What will you have when the price per bitcoin returns to the starting price?

From my calculations, if you corrected exposure to 40% daily, you end up back where you started after this roller coaster ends back at $10. Nothing was locked in.
When bitcoin peaked, there was the most capital. However, buying BTC on the way down simply lost the money back.

What's the purpose of this strategy again? If it's to have exposure to make gain from bitcoin, then it seems simply buying bitcoins one time now, walking away & holding is better, imo. Plus it would entail less headaches buying and selling.

Honestly: "getting rich" is not my goal, but I agree that mine is not a bad approach for it. Just increase your BTC holdings with the fiat you can afford to loose, forget about the exchange rate, work on BTC real economy, never exchange BTC for fiat, and we will see where we are at in 10/20 years. The most important thing: strong hands and cold heart, fear and greed are useless IMO.

And if BTC goes to 0, it won't be for nothing: it was work you did for an exceptional idea that is here to stay (its name may be Bitcoin or Bitcoin3.0, who cares), because this protocol has everything that makes technology exceptional: it gives freedom and power to the people.

Interesting. Thank you for sharing that.

Part of me also wants to think and act like you. I believe your approach is the way to get rich.

But what keeps me from doing it is that I can't stand the idea of seeing all these profits maybe vanish one day. Then all would have been for nothing.

I can guarantee you are mistaken. A practical example: I was very excited during the last bubble burst, I woke up at 4AM just to be awake when Gox reopened trading, as I wanted to buy as many BTC as possible with the fiat I could afford to loose in that moment. I had bids all the way down from $90 to $30, and one of the big ones at $42... I was really pissed I did not hit it, but anyhow I manage to buy quite a few BTC at an average price of $70, which is much more expensive than my average buying price for the majority of my holdings - but still felt "cheap", as I increased my stash in a way that satisfied me. I did not sell a single BTC during the crash, even if I watched it from the very beginning and i really believed we would be going down to $30 - call me stupid, but it was not worth the hassle for me to take out my paper wallets. I just didn't want to see my BTC converting to fiat, even if it was to buy more BTC later - I did not want to take that gamble because I preferred to not gamble my BTC.

Honestly, I won't be pissed off by a long term bear market, and a decline to $30 or below. In fact, that idea amuses and thrilles me - it would be an excellent opportunity to work on real BTC economy, strengthening the infrastructure (WE NEED MORE EXCHANGES!!) and the products and services offered... While it would be also a great opportunity to increase your BTC holdings, and to spend them in useful things, not dirty fiat.

I'm quite radical, with all things in life - my position may seem awkward to you, but I guarantee is legit. And of course this position is possible only because I gambled fiat that I could afford to loose, and I'm willing to take my gamble to the very end - I want to see where we stand at in 20 years. Doubling my fiat capital... Fivefold it.... Honestly, that is not important in my book. And if it was important, I still think that buying as cheap as possible with something you can afford to loose and then just holding long term is much wiser, because you will then have cold heart and you won't make silly mistakes driven by fear or greed.

But, for me freedom is much more important, and money can buy just a little tiny fraction of that.

Yes, we differ in opinion. Your reasoning is the same as what goldbugs say about gold. That's all sweet as long as gold keeps it's value, but when gold drops to the floor 20 years in a row (80's-90's) that mentality destroys their capital with -90%. Sure, gold is unique, but who cares if it loses all it's value? Not fiat value - VALUE.


I don't believe you when you say you will be ok with losing all that capital in bitcoin if bitcoin tomorrow goes to say $30.

I think you are saying untrue things to yourself in order to comfort yourself: 'no need to worry, these are only unrealized gains I stand to lose'.

Denying the risks of high exposure with the argument 'it is all profit anyway' or 'this is the only sound money' is a shortcut many people take here in order to feel relaxed while taking high risks (my impression, could be wrong). I've noticed that the same people suddenly feel very unrelaxed when the price drops seriously. It can end badly if bitcoin would be valued penny's on the dollar. Would you then not say 'what was I thinking?', 'why did I not lock in any profit when I could?'

Well, I don't agree with you. I believe in BTC not because of his growth potential in terms of exchange rate, but because I believe it empowers people, it gives them freedom, is a "f**k off" to a filthy system run by financial corporations.

Exchanging what i believe it's the REAL thing (BTC) for fiat money feels like a loss in my book. I prefer to slowly spend BTC in goods and services. You think on your "capital" in terms of fiat money, multiplying the BTC you hold by the exchange rate with USD; I think on my "capital" as X BTC and X fiat, and I don't really give a sh*t about the exchange.

That said, I'm not allocating more fiat that I can afford to loose to BTC, because unfortunately fiat is what I need to feed my family, at least ATM - and BTC is still risky. But I'm not going to get rid of something that has the power to change the world and empower individuals (BTC) to exchange it for fiat, because I really don't think in those BTC in fiat terms (hope I made some sense).

I think you are making a false reasoning.

Unrealized gains is not true. Those gains are realized. They are yours, and are now part of your total capital, which has increased considerably.

Right now you are risking 50% of your total capital to bitcoin. It does not matter how much you risked in the past to get here.  


Please don't put words in my mouth that I did not say. I never said btc is not risky. To the contrary.

I'm smoking a very good pipe, that's a fact.

What I'm saying is that I gambled 10% of my savings, and now that 10% tenfold in Fiat terms... But I really don't count on that unrealized gains, I did not enter BTC expecting to increase my fiat holdings, I entered BTC for the long haul and because I prefer BTC over fiat.

I can afford to loose that gains because I never realized them, and I can also afford to loose the initial 10% gamble. What i wouldn't do is to deny btc is risky, and thus I would never allocate a % of my fiat, hard earned savings, that would get me nervous or worried if I was about to loose them.

And sorry for my sloppy English

Rampion,

So first you spell me a lesson of risk like I'm a teenager while I am 15% invested in bitcoin and then you proceed in revealing that you are invested for 50% but that you are not risking much. 

What pipe are you smoking?  

Despite of what I said, I realize that with the current exchange rate my "exposition" to BTC is more than 50%. I initially bought BTC at $15ish, investing what I could afford to loose (aprox. 10% of my savings), and then I've been engaging in BTC businesses and investments (I'm more a "real economy" guy) that increased my BTC holdings without trading. So we could say that now +50% of my savings are BTC... But I don't consider or feel that as "exposure". I gambled 10% of my savings because I believed in BTC, while acknowledging it being risky (that's why only 10%): but I gambled that 10% for good, for the long haul, not willing to convert that money to fiat anytime soon... In fact I wouldn't mind to NEVER convert it back to fiat. I will hold those coins like a mofo, and I'm also buying some more with spare cash when there is a real opportunity (flash crashes, big dip)... But mostly I'm investing those BTC in BTC related ventures (mining, securities, etc.) which ATM is working quite well, being BTC economy so reactive and thrilling.

At the end of the day I don't feel "50% of my wealth is in BTC". If it goes to 0, I will feel I just lost 10% of the savings I had a year ago, and who cares... If it goes to +$1,000, well, that's OK... Then I may be selling a little for fiat, but I'm not so sure about it.

You seem to forget that a) Bitcoin is still experimental software and b) even if the protocol is robust, at this moment it's very simple to crash the exchange rate for good (because of its still fragile infrastructure and tin penetration)

Your view about "-50% of the 200 day MA" being safe because undervalued is something that works very well in stocks, but Bitcoin is not a stock. The risk in Bitcoin is always high, at least for the moment. There is only one exchange that controls 80% of the market, that exchange could shut down at any moment and take the price to <$1. Or their bank accounts could be freeze because a couple of customers don't see their wires credited on their accounts and file police reports. Or because an FBI investigation about money laundry leads to Gox... Or whatever. Those are just examples, and I could go forever with other many, just to point out how risky is Bitcoin at this point.

Making a long story short: Bitcoin is the kind of investment where allocating more than you can afford to loose is just plain stupid. Can you afford to loose 50% of your resources? The answer might be yes, I don't discuss that - as I said earlier there are many circumstances that coud make it worthwhile to gamble 50% of your wealth on BTC. Hell, when I was 24 years old I would not have minded to gamble EVERYTHING I had on BTC, because the potential rewards are so high, and everything I had was so little...

Again, don't fool yourself: risk is never "low" in BTC. If you fool yourself thinking risk is "low", you will allocate something you cannot afford to loose and that will cloud your judgment at some point. If you allocated too much, if something bad happens (like Gox being shut down, or the exchange rate sinking to really low levels because of a sudden fork, or because kiddie porn in the block chain goes suddenly to mainstream media, whatever) you won't be so cold and you will probably make bad calls.

if people were to start using your plan than it would stabilize the bitcoin economy. this would be good and bad. people come to bitcoin just for the fact that it is volatile. Also your plan would stop working if we all did this, it were to flat-line. all of us selling when it goes up one dollar all of us buying when it drops one dollar. I do think its a well thought out plan and a good plan. I think that you should only "play" with one third of your holdings. you should keep two thirds in a vault that you dont touch untill you hit a target price point, say 18,562.00 then take half of them out and don't touch the other half till it doubles and keep doing this.  the other reason for taking them out would be if you were in a financial bind but be sure to treat it like a 401k and make yourself buy back in even if it costs you x amount more to have x amount of coins. personally i think to buy 90% and 10% in case it crashes and you can pick up some discounted coins.

Oh, I'm sorry, I misread you.

Well, congratulations on your amazing investment!

If you feel comfortable with the exposure you have now (75% btc ? ), then all is good. Risk tolerance is a personal thing.

Holding on to them and not selling any has up until now been the best strategy so the empirical evidence is that you did the most profitable thing possible.

I admire you.

OK, that's the opposite of what I meant actually but depending on your life situation might be the right perspective for you. Personally I put about 10% of my assets in at $7 on average and have let it ride. I'll let you do the math but clearly some folks here would have taken some back off the table. If I were good at short-term trades I'd try more of that stuff but I still remember the time I sold at $4.36 to lock in a quick $.17 profit. Obviously never got that coin back

I agree that allocating 50% of your capital to bitcoin looks very risky.

However, on average I plan to invest only 25%.

I will only invest 50% if bitcoin were to ever go to serious undervaluation again. For example, after the crash in 2011 the price ($3) was considerably lower than the 200 day moving average ($9), so you can then say that the price is depressed/low already. The downward risk from there is low which means it's safer.

So kicking up my allocation to 50% bitcoin at that point may seem risky, but is actually equally risky than having today 15% of my capital in bitcoin, when the price ($150) is still a lot above the 200 day moving average ($38), because the downward risk is much higher today.

Basically, the risk I take in bitcoin remains the same over time and summarized it's only 25% of my capital that I risk in bitcoin, eventhough I might sometimes have 50% in bitcoin.

Thanks for your confirmation!

13% is indeed still high exposure at the heights of a roaring bull market, but indeed, bitcoin can then still do jumps no one expects, never to come back to even those heights (thought chance is very low for that, but if it happens and I only have say 5%, I'm pretty fucked, basically losing most of my coins and an opportunity to become very rich).

I came to that number by revising my target exposure. I have that now at 25%. I want to half it when risk is very high, and double it when risk is very low, so that means going down to 13% min, and going up to 50% maximum.

You are right that this investment strategy involves a lot of buying and selling. This creates exchange risk but also tax events. The exchange risks I'm trying to minimize by using many different exchanges. The tax risk depends very much on your residence. There are many countries that have no wealth/capital taxes. And if you don't want to move, there are other solutions to legally reduce tax burdens.

But I admit that it's a difficult problem to solve and can have huge costs depending on your situation. If you are say a US citizen then moving your residence does not even solve it, you have to get rid of your US citizenship, and this I can imagine is a huge cost also. If you don't want to do that simply buy and hold certainly solves the tax implications.

I think it comes down to calculating the loses that come with buy and hold, vs calculating the loses that come with creating a tax event.  

Say you buy and hold and we are around $200 recently. You decide not to lock in profits as to avoid a tax event. Well, today around $150 you lost 25% of your investment, and with hindsight, we know now for sure that it was more profitable to lock in profits and pay the taxes on it.

But I admit, being taxed on your capital, is another very good argument in favor of the buy and hold strategy. Your strategy to combine buy and hold with loans etc sounds like a very well though out way to minimize your tax burden.

I'm sorry for anyone having to pay them, it sucks.