Topic: (SSS) - A Sane and Simple bitcoin Savings plan - page 9. (Read 84914 times)

We know volatility in excess of the frictional trading costs exists.  I think this suggests that a slightly more optimal strategy than the SSS must also exist.  Like some others have alluded too, it could be an SSS plan (with sells perhaps spaced every decibel, rather then every doubling), but, most importantly where you have a trailing bid at, say, -1.5dB below your last sell point.  

Think of it as an SSS plan  +  a money-pump harvesting the volatility that exists anyways.

I know Risto explained how the trailing bid removes some of your hedge, and I agree.  My counter would be that for a given level of retained bitcoin wealth should bitcoin hit $100,000, and an assumed level of volatility, there is a strategy that would produce a higher amount of "raked-USD" than the SSS should bitcoin fail before it gets to $100k+.  We just need to find what that strategy is.  Ever since I read about Risto's SSS plan, I've wanted to simulate this and some other ideas.  But, alas, my real job calls.....

From my experience buy-and-hold with a simple rake still offers the most gain for the least effort.

If you want to increase the gain via a time-based arbitrage you have to give up some of your longterm price appreciation for the benefit of short-term price fluctuations. It's always difficult to figure out which one is more attractive at certain times. If the price flatlines a reversible rake strategy with a small enough margin will do well. The problem is to be able to predict when the price flatlines and when it starts to rally. If you have too much of a rake involved and you miss the start of a rally, you basically forgo all the opportunity gains coming from that initial slope in the rally.

That said - a reversible rake strategy works best in a scenario where there are huge price inflations and deflations, as you accumulate fiat on the way up and btc on the way down without the need to call the bottoms or the tops. That said - I don't expect bitcoin to depreciate more then 10x anytime soon - other than becoming worthless because of some black swan event.

Might you be able to simulate this with random price development? (I can only do it in Excel, and that way it'd take some time)

In that case the SSS could be enhanced by a speculative component: 10% non-reversible rake and 5% reversible rake. The reversible rake would trigger a buy-back at a price point which e.g. is at half the price point at which it was used.

E.g. assume a (USD/mBTC) scenario by starting with 10 BTC ($10k USD) : 1->2->4->2->4

15% conventional rake strategy at each doubling: (USD/mBTC, BTC, USD)
1,  10, 0
2, 8.5, 3000
4, 7.225, 8100
2, 7.225, 8100
4, 7.225, 8100

10%nonrev/5%rev rake strategy at each doubling: (USD/mBTC, BTC, USD)
1,  10, 0
2, 8.5, 3000
4, 7.225, 8100
2, 7.650, 7250
4, 7.225, 8950

The 10% acts as a hedge, the 5% acts as a time-based arbitrage from which you gain additionally.

There is a portfolio allocation strategy called PISTOL, in which you set the percentages for RE, stocks, bonds, cash and gold. Then you annually readjust the portfolio, which lets the winners run some time before buying more of the "undervalued" investments. The problem is that it basically gives you just a weighted return of those asset classes, and not more. It did not perform well in the simulations.

If you buy back after a turn to the downside, you essentially lose the hedging part and if you do it enough, you just waste all your cash (or whatever investments you have aside BTC) if BTC goes to zero. That is the risk we want to hedge against, not gamble with.

Of course there is the temptation to buy back. If that becomes too big, just set the rake-% lower. With 5% rake your portfolio tends towards 90% bitcoin 10% other. Another approach would be to rake constantly (but minute amounts) after minute increases in price, and then have a percentage drop (say, 25%) after which you start to buy back. Then you get to keep the top 25% regardless. I haven't simulated this yet maybe it's a stupid idea. However I'm pretty sure that most if not all people do better if the strategy does not allow leeway.

I think one of the toughest parts about the plan is the temptation to buy back in after a rake. Example:

- BTC briefly touches a new ATH at $1,000
- sell 10% for fiat
- BTC plunges to $500 a week later
- buy back in and hold for BTC to reach $1000

Assuming a strong belief that the new ATH is a realistic value for BTC, I for one would be very tempted to buy back in with the 10% I had just sold and wait again for BTC to double again.

I am thinking that the initial buy-in should be DCA'd a little, even though it nets fewer coins, it increases investor confidence. What about the following idea:

- Invest first the amount that you can confidently lose without a blink. Regard this amount as lost.
- Repeat weekly until you haven't had the urge to buy more for several weeks
- All that money is lost, do not calculate its value every day, spend your time learning about bitcoin rather
- As long as you buy more, you don't sell any. This is a rule: earliest selling is 90 days after last purchase.
- Then only compile the SSS diversification plan and set the parameters.

The more I read reddit and the speculation forum, the more convinced I am that the logic of the OP needs to be internalized as part of every newbie's education. The Paradox of the Rake, to rename a point made by rpietila, is that performing proper rakes prevents panic selling.

"To hold onto your bitcoins through thick and thin, you must sell."

I think wide diffusion of this rake concept would significantly reduce volatility. This post or a similar one should be in the sticky at /r/Bitcoin, speculation forum stickies, youtube video (short visual one and longer, detailed one - James D'Angelo?), etc. It is critical investor knowledge and can be considered part of Bitcoin's educational infrastructure, in the sense of being a component that enables Bitcoin to take over the world faster (and happens to make Bitcoin investors richer vs. the Wall Street money that will pour in in 2014 and less stressed as a bonus).

Additionally, Risto's savings plan is not only a plan, but also solid grounds for analysis. Despite being only dimly aware of the rake concept, if at all, most early adopters have likely followed it to some (suboptimal*) degree simply because of the psychological factors at work when one is faced with the Bitcoin "binary bet." This provides the ultimate answer to those who worry of wealth concentration, as well as an underpinning for speculative analysis.

*Either taking on excessive risk or losing an excessive number of coins, or alternating between the two, and ending up much poorer than was possible, due to lack of conscious application of the rake.

Great strategy, thanks a lot!


So, the purpose of SSS is:
a) Spend some BTC on everyday life
b) Balance BTC risks with it's benefits by diversification.

Benefits of BTC are proportional to it's rate. So it makes perfect sense to schedule sells by the BTC rate.
But risks of BTC are proportional to time, rather than to rate, because whatever can happen with BTC, can happen any time, independently of the rate. So it would make better sense to schedule BTC sells by time, rather than by rate.

The same is about spending. To increase our living standards we need some regular income, while with the SSS it may be a number of BTC sales a month, followed by a half-year without any sales.

So, wouldn't it be better to sell, say, 1% a month, whatever the rate?

(Yes, we won't have benefits of ATH, but risk and income will be better spread).

I really like the 10% rake on every doubling...  I'm basically using that with a slight modification...

As doubles tend to be far and few between, I'm using a 1% rake on each 10% increase... Over the past couple days this has resulted in a bit of excess, however long term it seems to be working out fairly well....

Siggy

Don't worry you are not alone that way, according to various surveys the majority of GenY (21-35) are in huge debt or barely making enough money to get buy due to cost of living pressures. So whatever little you can put into Bitcoins will definitely help you improve your standard of living or paying off your debts.

Think of it this way, for example calculate how much you spend on useless stuff that you can cut on (expensive coffee, dining out, regular Gadget upgrades, fuel for excessive car trips etc) and cut down or eliminate them, take the same money and put into coins, that way you can put in even more money that you can afford to lose.

great post by reptila as usual 

He has 1.2BTC already I gave him, he's holding that, this 0.1BTC is really a little fun, get him used to thinking about money, investments, hedging strategies, discipline,  etc, and hopefully, he gets to stack a few shiny Silver coins, so this is just a bit of fun for him, if he did only have the 0.1 you'd be right, far better for him to hold.

I will explain my simple savings plan.

I am a student, so almost inherently constantly next to broke. Both in the real world, and the Bitcoin realm. I heard about Bitcoin long ago, didn't do anything with it, poor me. I heard about it again last week, and decided to invest. I have made 2 purchases, both €100,-. I made this small investments because I can miss them. Next time I have money to spare will be end of December, therefor what happens during the upcoming month is irrelevant for me. I will not sell, because I can miss the money I invested. When will I check out? I hope not before 5 years. When will I reinvest and what? As long as I believe in it I will invest money I can loose.

Yep, tell that to those who bought for $0.05 in July 2010 and then sold at $20 in Summer 2011, "bringing home" a profit of 1-2 million $. Now they would have close to $100MM.

Selling most of your coins is for suckers.

Saving is for suckers.
Buy at 10$ and sell for 1000$ in under a year.

silversurfer, I think your son has a better chance of a much greater return if he just forgets about those 0.1 bitcoins for a few years and doesn't sell any. Silver is a nice alternative but it's potential is so much lower than bitcoin it's not even worth discussing. Silver is great to hedge vs bitcoins but with a so small amount as 0.1btc it's just better to hold on imo.

very nice plan rpietila.

The only thing I would add is to take into account the purchasing power of the dollar.
In dollar hyperinflation mode, the price of bitcoin could be doubling every few days or hours.
If you stuck to this plan religiously (which I guess is the point), then you would lose big time.
Maybe add a rule linking the rake not to $ price, but a basket of commodities.

I've thought of a Strategy I'm going to set my Son up with, I'm going to Give him, 0.1Bitcoin, which is about 4 oz of Silver.  Let's say 0.1BTC is currently worth $100.  Just to keep the numbers simple.
Wait for an increase, when he has enough to buy an Ounce of Silver, and still leave 4 oz Of Silver worth of Bitcoin.
Buy the coin, including postage etc.
Now he has an Ounce of Silver, he has Less Bitcoin of course, but he can still buy 4 ounces of Silver because of the new higher value of Bitcoin.
In this way, he can keep $100 Worth of Bitcoin, and Periodically, every few months or So, buy himself another ounce of Silver.
Obviously when Bitcoin dips in Price he doesn't have 4 oz Silver worth of Bitcoin and cannot buy an extra coin, he must sit out the dip and wait till he has 5 oz worth of Bitcoin.

So, apart from when the price dips, he always tries to keep about $100 worth of Bitcoin, as soon as he has enough to buy a coin and still have $100 in BTC, he buys the coin.
It all depends of course of Bitcoin's deflationary nature.
He's gaining silver, but losing bitcoin of course, but due to Bitcoin's deflationary nature, he always has $100 Worth of Bitcoin.
theoretically, in a year or two's time, he might have a stack of Sillver, but only 0.01 bitcoin, but by then, it will still be worth $100   (Hopefully)
Just repeat this ad infinitum.
He gets an increase in his silver, but the value of his Bitcoin remains at $100.

A slight variation is to buy the first coin, then, after buying that first coin, he has 4oz of Silver worth of bitcoin, Next time he waits for a Price rise of Bitcoin of 2 silver coins.

Now he's got enough extra Dollars to buy 2 coins and still Keep $100 Worth of Bitcoin, but he only buys One Coin, thus he gains 1 coin, Plus the value of his bitcoin holdings has risen too  (though not the amount of his bitcoin holdings obviously)

OK, he has to factor in the postage so he must wait for the price to rise to $30+ or so.

So now he has 1 extra coin, plus $125.
In this way, by waiting a bit longer between purchases, he gets silver PLUS an increase in the Value of his Bitcoin Holdings over time.

You could obviously scale this up buy starting off with more BTC.

I though it might be a good hedging strategy, buying silver with BTC Gains, so, providing Bitcoin don't crash and burn withing the first year or so, you quite possibly end up with More in silver than you risked in Bitcoin, and possibly still have some BTC too, with which to keep stacking Silver, theoretically indefiantely, seemingly Conjuring Silver out of thin air.
Obviously this only works as long as BTC continues it's deflationary Rise but might be an interesting, Cautious investment strategy, the only risk is in the first Few months or so till you've bought enough silver on your Gains to cover your initial risk.

In this way, you are effectively Conjuring silver coins out of thin air, you're not of course, they are being paid for by the increase in the price of Bitcoin.
It's almost as if you are conjuring Silver out of this air, and theoretically in ten years time, you might have 0.00001 BTC, which might by them be worth a few hundred $s , and you can keep stacking silver with it, without end.

Ideally, you should be comparing your BTC holdings to the Value of Silver, not $s as if the Dollar starts Hyperinflating, you might well have $100 but it might be worth Zilch, so you should be comparing your BTC holding to silver, not the Dollar.

By scaling this up, you could theoretically conjure out of thin air (seemingly) , your monthly mobile phone bill. Maybe Your electricity Bill, maybe, if you have enough BTCs to start with , your Mortgage on a monthly basis or a sizeable portion of your mortgage per month.

Good point, but what do you think about this argument :


?

That certainly happened to me, buying my bitcoins all at once just before the crash of 2011 and the long, depressing "crossing of the desert" that followed. I did the "research bitcoin to decide whether it's worth investing in for a week and watch the price double during that time, then lose sleep and panic buy, then watch the price plummet in a few days" thing. Now, I guess if I was more experienced, I might have noticed the mania around bitcoin at that time, but experience is exactly what newbies lack...

Bump :

P.S.: It's funny that (after one week trying to short the current bubble (?), and probably selling too much, not to mention wasting one week of my life staring at charts), I decided on a "selling plan" very similar to yours.

Still this is amassing, no one is complaining, but rich is a relative term.

Ultimately you need to let coins go to help distribute the risk and benefits, the wealth doesn't come into Bitcoin purely because of lack of supply, so this RAKE and SSS plans gets my support.

While not described here the goal isn't to own all the Bitcoin, it is to get everyone owning them, if ownership of all the coins is too concentrated, then people will find alternates. Embrace the volatility, it is spreading the risk and benefit.