Topic: (SSS) - A Sane and Simple bitcoin Savings plan - page 11. (Read 84960 times)

This requires proof. I downloaded the longest timeseries of Bitcoin trading activity available (Mt.Gox USD), and set the following:

A person wants to invest $1,000 in Bitcoin, and has the following options:

- Invest it all now, at an average price this week.
- Invest it in 4 equal lots in 4 subsequent weeks, starting this week.
- Invest it similarly over 8 weeks
- Over 12 weeks.
- Over 26 weeks (6 months)
- Over 52 weeks (12 months).

Then I calculated, how many bitcoins can be gained/lost by spreading the purchases. Result:

On average, by buying all instantly, the following advantage over other options was gained:

4 weeks = +8%
8 weeks = +20%
12 weeks = +33%
26 weeks = +79%
52 weeks = +161%.

In some cases DCA does come out ahead. In the 10% cases that most favored DCA, their advantage was (negative sign=DCA advantage):

4 weeks = -13%
8 weeks = -22%
12 weeks = -31%
26 weeks = -30%
52 weeks = -46%.

On the other hand the 10% most favorable cases for instant buying yield the following:

4 weeks = +33%
8 weeks = +77%
12 weeks = +101%
26 weeks = +214%
52 weeks = +416%.

By dollar cost averaging, the most would have been gained by having a 52-week plan instead of an instant lock-in in the week of 6.6.2011. (-77% less coins for instant).

By buying instantly, the largest advantage over DCA would have been by buying in the week of 27.9.2010 instead of during the following year (+629% more coins).

This is a wonderful plan and can effectively remove emotional trading, which is the main reason causing loss for non-professional investors like us.

There's only one question: there's no stop loss policy. So if BTC never reaches the price where we can get the original investment back by selling and then goes to 0, we will definitely lose most of the investment because we cannot sell any more. In extreme case, if BTC never reachs $2000 and goes to 0, we have no chance to get money back. Even if it reaches $2000, we cannot get much from it if it never reaches $4000 later.

Any thoughts? Is this plan completely based on the assumption that BTC will keep exponentially increasing for a while and never goes to 0? Should we set up a stop loss policy so that we can at least get something back in the real crash?

Thanks for writing all of this and sharing it with us Risto!

I will be showing this to all of my friends, who started contacting me lately because of BTC.

The nice thing is they can now buy at the ATM instead having to go through the hassle of exchanges As you mention, with the average speed of appreciation being so high, every day of delay of your initial investment is quite significant, so great to have the ATM.

I don't think it really matters. Both will do bad if bitcoin rises. If the crypto genie can be put back in the bottle, the world will be a sad place anyway and both g&s will have their uses. Considering that gold market cap is >> silver's, I would overallocate in silver. The point is to acquire stuff that would do well if bitcoin is destroyed. Nobody cares your gold or silver if bitcoin does rise to $1M. This is called diversification.

phelix comment deleted due to intentional snipping quote out of context. The minimum honest quote is one sentence between two periods, not a string of words in between, as a long time member you should know it. Do not post again. There are other threads for:
- strawman arguments.
- discussing whether bitcoin can possibly hit $1M or not.

Thank you.

It is the standard plan for all kinds of high-risk events that can be reduced to either going up or crashing. For LTC it works exactly same way, you just need to do your homework to find the target value for LTC (or make the plan open-ended so that you always sell if it goes up more, and always hold some of the bag if it goes to zero).

I think LTC is overvalued at 0.01344, it does not offer anything compared to BTC, and it cannot be used anywhere. The whole community seems to consist of pump and dumpsters. I think the risk/reward is just not there compared to BTC.

- With Bitcoin (compared to fiat), you have (nearly) unlimited reward, compared to limited risk (all of your investment, but not more).

- With Litecoin (compared to Bitcoin), you have limited reward (small potential of a sustained LTC/BTC rate increase), compared to unlimited risk (much higher probability of going to zero, or orders of magnitude down).

Thank you for your feedback, but:

NO. DO NOT "DOLLAR COST AVERAGE", SINCE IT LEADS TO A MARKEDLY WORSE RESULT IN EVERY SCENARIO WHERE BITCOIN CONTINUES APPRECIATING AGAINST THE DOLLAR AS HAS ALWAYS BEEN THE CASE SO FAR.

Other points are correct.

rpietila, would you also suggest this kind of plan for Litecoin (perhaps on a smaller scale right now)?

dollar cost average.  buy same amount every week.   Also, hold your bitcoins locally.  Online wallets and exchanges can and have disappeared, been hacked, etc.

Wow, just wow

Thanks for this brilliant articulation

The cashout speed is relative to value appreciation (in the hypothetical world where all current holders are SSS'ing). So only if there is demand, will the price go up, and the supply will come. Price will not go down because nobody sells to the falling market, as they have already sold to the rising, and are comfortable.

Using the 10% rake example, we can easily calculate how many dollars will need to be invested for the price to go up by the target, 1000x. How? The investment of the new entrants is equivalent to the rake of the current holders. (Should I use dividend instead of rake??) In the first runup from $1 to $2 per mBTC, 10% of all existing bitcoins are sold at an average price of about $1.4. This results in a $1.7B rake for old holders, which comes from new investors' pockets. The bitcoin market cap is raised by $12B.

The (new investment)/(rise of market cap) ratio is therefore about 14%. Loger term, this ratio has been about 25% on average. In steep runups, it gets lower and during prolonged plateaus it is higher. It is advisable to sell more when the price is trending higher, and refrain from selling altogether if it does not rise.

Like I said before, the best advice I can give to new investors (advice value is high, because it is so far from the usual new investor pattern):
- Buy sooner than you are comfortable (right now is best, dollar cost averaging sucks bad since bitcoin rises 400%-10,000% per year so far)
- Buy with less money than you normally invest (you can buy more later, but most will not need to)
- Set a rake % that suits your preference (10-20% is usually best, consult the tables)
- Decide when to start raking/cashing out/diversifying (skipping the first 1 or 2 let you retain much more coins, but make the decision now, not according to circumstances)
- Stick to the plan. It is a speculative investment from dollar point of view, and no matter how high it goes, you should not go emotional and stop selling. Also if it goes lower, you should not try to cash out. Also make a new purchase only after careful thinking since it may go to zero and the idea of rake is that you win money regardless, not lose it.


**

I understand, this kind of mathematical talk is so intimately similar to a pyramid scheme, perhaps it's good to link to a lengthy treatise of mine, explaining how Bitcoin is not a ponzi, or a pyramid scheme, but a revolutionary technology whose value is correlated to the userbase, which means that it is on its way to become a self fulfilling prophecy where the value of the network grows faster than the money invested.

I like rpietila's plan, it's solid and what I've planned for BTC. It's what I've done for angel/VC investments (at least the one out of 10 that worked). Sold 10% at 10X (there was no liquidity before that point), then another 20% at 20X (20X total, an additional 2x I mean), and another 20% for a total of half of it sold by the time the investment was at 80X. Then it went IPO and dropped back to 20X and I feel like, hey, that sucks but it also worked ok, I sold a few times and hit it right some of the time. Now I'm selling some of the rest for BTC

For BTC, something like this has been my plan: get in fast and then taper out. I came into this late and bought at about $300. Still, it has doubled already, and I don't want to pay (US) short-term ordinary income rates, so I plan to wait until 1 year for my first draw down (rake). I do wonder though, if it goes up 10X from 300 well short of 1-year--possible, depending if these weeks have been a flash or just taste of worldwide demand just opening up--should I let taxes get in my way of raking out some of it.

Nice article!

Currently bitcoin is appreciating so fast that you have to throw in all your risk capital at the beginning of this saving plan, it will be much more difficult to acquire more coins after some time

This also raised a concern: Since people will mostly invest only once in their life and then start to cash out slowly afterwards, soon there will be less and less people buying bitcoins every year

When the market is fully saturated, there are still 370,000 babies born every day, means maximum 370K person start to invest in bitcoin each day. With about 5000 coins supply per day (from a 10% cash out per year strategy), it is 0.0135 coin per person. Suppose each of them spend $10K to acquire those 13.5 mBTC, that will make one bitcoin worth $741K

However, their purchasing power can not raise exponentially like current bitcoin price, so the price appreciation speed will eventually slowdown when it approach this level

Of course we are still far from a fully saturated market

Yes, thanks for posting it.
Here is the other post:
http://www.reddit.com/r/Bitcoin/comments/1rcvhq/finnish_bitcoiner_risto_pietilas_simple_and_sane/

Bang on, I'm living proof of the one bolded above.

Thank you for bringing this little secret to public attention. Indeed - the most important thing to do with high-risk investments is to reduce the initial investment risk to zero and take advantage of the price appreciation according to a schedule - this is also how people make money from a ponzi or bubble formations. It takes the emotions out and helps you with building a stronger portfolio.

Unfortunately we still have a problem spending bitcoins as not everything is available for it. A fixed plan to avoid emotions we certainly need. Or so I think.

Sorry to the newbies reading this.

Nice plan.

I think the essence why the plan is good to have is that it enables you to see to the future - given certain bitcoin price, you know in advance how many bitcoins you will have remaining and how much value you receive that you can spend in other things or invest. This rules out emotion and guards you from making mistakes.

What would you suggest for people like me who have already been buying in?

I still have about 75% of my maximum holdings, but the question is, what do I do now?  I have more liquid capital now that I could invest, but should I?  The problem is that I could double my exposure, but only increase my bitcoin holdings by 3%.  That doesn't seem wise.

Am I missing something?

I don't understand all that... rakes and things...

My simple strategy I'm currently considering is:

- hold 1/3 initial stash for the longest time (ideally forever), in case it goes to millions per BTC
- remaining 2/3rds I sell at every doubling, with the amount of BTC sold starting at 5% of this 2/3rd, and each selling the amount sold increases by a fixed positive exponent such that this stash will eventually be used up when it nets me a "now I can retire" amount of $$.

Thoughts?