Bitcoin Forum

I think I have developed a very good investment strategy that might help some here. I say some because there are many other investment strategies that will work. But in case you have been losing money, or you felt too much stress, you likely don't have a good one.

I allocate a fixed percentage of my capital to bitcoins. My target exposure is 40%. This way if the price goes up my exposure goes above 40% and I am forced to sell bitcoins, and if the price goes down and my exposure goes below 40% I am forced to buy more bitcoins. This goes against some strong emotions as the bull in you does not like to sell any coins when everyone is bullish and the price is going up. As everyday the bull is proven right that selling before was a mistake. Inversely, buying when the price goes down goes also against your emotions as the fear comes in and price will likely continue to fall so we should wait! But instead this system forces you to buy.

From a risk perspective this allocation strategy also makes sense because managing your risk means never bet too much of your capital on something, but also don't bet too little on something that has a big chance of making you a lot of money. Typically if you don't have a fixed allocation strategy what happens is that into rallies your allocation to bitcoins goes up way above what you would have chosen yourself if you were to make a fresh decision, and inversely into crashes your exposure becomes much lower than what you would have chosen yourself, if you were to make a fresh decision.


I'm not saying emotions are bad, they are not, they tell you something very important, to be fearful/chicken from something that goes down in value, and to be brave/greedy for something that goes up in value, makes good sense. However, letting these parts take you over in your decision making is not wise. Letting any parts/feelings that you have take you over is never wise. The key is to listen to your different parts and make a decision so that all your parts are satisfied. Because, very likely, when the market goes up and your greedy part says 'buy more', you also have a fearful part in you, saying 'no, this is too risky!'. And when market collapses and your fearful part says 'don't buy, too risky!' or even worse 'sell now!' you likely also have a brave part saying 'but now is the time to buy!'. Many people just ignore certain parts in them and let only one part take themselves over and act it out. This is a recipe for disaster.    


Ofcourse having allocated always 40% of my capital means that if bitcoin fails and goes down to zero, I will continue to buy and lose all my capital. So one thing that is very important for this strategy is to always check the fundamentals. If the fundamentals are broken this strategy should be halted and no more buying. I don't mean government intervention as this cannot destroy bitcoin, but technical issues, or a competing currency taking over bitcoin, may never be ignored, even if is just a thread on the horizon, it should be investigated in depth as failing to notice in time will be a disaster.

I executed this strategy myself since I started investing in bitcoins at the end of 2012 around $15. I did not stick to this strategy and made some serious mistakes. My initial allocation was way too small when I entered around $15 with only 7% of my capital because I applied the incorrect saying 'invest only what you can afford to lose'. As the rally progressed I also gradually let go of my allocation target more and more and when it counted most, around the high of $250, I was exposed way above my target and sold way too little that day. Still with bitcoin around $150 today my return on my - complete - capital is 45% today, which is very respectable to me. I sold into the rally, bought into the crash, and am selling again into the current rebound. I succeeded in buying low and selling high and always kept an exposure to bitcoin.


I have added some more tweaks to this strategy and will gladly share if I see that some here value my post.  

Anyone willing to give me some truth why probably no one responded to my post?

Is it my doing? What could I improve?

i like your post. but i think the average guy here falls asleep if he has to read more than 3 sentences in row ;)

Buy and hold: 1000%
Your strategy: 45%

wonder which one I want

Your thread was probably pushed off the page quickly because idiot trolls are shouting multiple threads at the top of their lungs

Yours is a mature, sane strategy, but I still think one should pay mind to how much they are willing to commit in terms of fiat at the outset to avoid overcommitting in extended dips, and that I also personally think that this form of thinking will not be easy to adopt by novices to investing.

ineedausername> give him a break. he admitted himself he made mistakes. We need more constructive threads like this in this forum.

So, you don't stick to your system though you said not sticking to it caused mistakes.

Yes.

My husband and I thought we would try to invest in BTC slowly and steadily but then just threw caution to the wind with the prices started to skyrocket.  With all of the talk about BTC being worth $500, $1000, $100,000 or more at some point we felt we had to abandon plan A and go for plan B which was going "all in."  Now perhaps it would have been better to be more methodical about it and not emotional.  We were not able to capitalize when the price dropped because we were not liquid enough to take advantage.  As long as the price keeps going up we are not losing any money.

So, I guess I would say just do what makes sense to you.  If the prices rise, no plan is really a bad plan as long as you end up with more BTC and your plan will certainly allow for that.

I can't speak for anyone else, but I didn't respond because I didn't see your post until now.  There are so many posts every day, mostly by people who have nothing useful to contribute, that the good stuff gets buried.

The same thing happend to my post yesterday at https://bitcointalk.org/index.php?topic=187530.0 (https://bitcointalk.org/index.php?topic=187530.0).  Only one short response before it got buried among the rabble.

I would appreciate if you would read my post and respond!

I discovered this morning that there is already a trading bot that does something very similar to your strategy.  It periodically uses limit orders to readjust the portfolio to keep 50% in fiat and 50% in Bitcoin.

I'm using a slightly different strategy.  I estimate that the price of Bitcoin will probably mostly stay between $100 and $300 in the next 6 months.  I have spread my bitcoins out across that range, in the form of buy limit orders backed by fiat between $100 and the current price, and in sell limit orders backed by owned BTC between the current price and $300.  Whenever the price goes up, the sell orders automatically execute, and I use the proceeds to back more buy orders lower down.  When the price goes down, the buy orders execute, and I use those bitcoins to back new sell orders higher up.

The primary difference between our strategies is that my percentage in fiat is variable, based on my predictions about the future trading range.  When the price is $100 or less, I will be 100% in BTC.  When the price exceeds $300, I will be 100% in fiat (except for the 10 BTC I'm holding in reserve in case the price suddenly goes to $1 million).  Assuming the price stays mostly in this range, I should get higher returns.

Our strategies are similar in that, if the price goes to zero, we're both screwed.  We're both left holding lots of worthless bitcoins.  Also, if the price goes straight up, our strategies keep pruning the bitcoins until we're left with fewer than the "buy and hold" strategy.

However, the best way to predict future behavior is to examine relevant past behavior.  We've seen extreme volatility around a steady exponential increase, and I expect that trend to continue.

I would like to hear your thoughts on the differences between our strategies.

Wauw, thank you all for the many responses :)



This is a fair criticism. But you are comparing apples to oranges also.

I went in with only 7%, and then I applied the strategy to sell on highs and buy on lows.

If you want to compare the returns of buy and hold vs my fixed allocation strategy you should also take 7% initial investment for the buy and hold.


Here are the actual numbers. At entry price of $13 and current price of $130 I sevenfolded my bitcoin investment. A buy and hold would have ninefolded my investment.

However, I only sevenfolded because I lost a big chunk of my fiat profit to the exchange clamp down of bitcoin-24. But indeed that's extra risk for any trading strategy vs simply buy and hold. But very bad luck on my part as this is the first exchange where the fiat is frozen and seized. Until now all exchanges that had their bank accounts closed did return the fiat.  

But I take your criticism and it's a good point. I would have been better of today with a buy and hold.

My counterargument to it would be that it can still change. All depends on the future price of bitcoin. If bitcoin goes to $60 for example, a buy and hold strategy will only have fivefolded the capital with entry at $13. But I will have, I estimate, sixfolded my capital then, even after taking a huge exchange clamp down hit. Without the clamp down I would likely have eightfolded my capital by then.

With current price 10 times higher than entry price in only 5 months, a buy and hold wins out. But this is an exceptional rapid increase, that on average does not even happen on a yearly basis. So chances are right now considerably higher for the price to go sideways or down, which will be in my advantage.

Thanks for your criticism, I admit it's a strong argument and I am considering switching strategies to a simple buy and hold, if I ever get the chance to load up btc again at cheaper or depressed levels.

:) thanks mate

Thanks blackreplica :)

Could you elaborate on what you mean with 'overcommitting in extended dips'? And how this came up for you when reading about my fixed allocation strategy?

Why do you think novices to investing would have more difficulty with such fixed allocation strategy?

Yes. I learned my lesson and am now sticking to my fixed allocation strategy much better.

I don't understand what you mean with your post?

Maybe I haven't understood good, English is not my native language. You said that your strategy is 40% in coins and I see that 45% there.

We have a female in the house :)

Thanks for replying BitChick :)

What do you mean with 'yes', do you think my post was too long to keep attention?


Thanks for sharing your strategy. I'm getting the impression your plan b to go all in, was not really a plan but panic buying?

May I ask what your average buy in price has been?

Do you have fears of the price dropping?

Would you have preferred to have done things differently?

Your strategy is a standard diversification strategy for managing risk. It is a sound strategy and I encourage everyone to use it.

My only complaint is that 40% is much too high. Bitcoin is extremely risky. Take a moment to consider what losing 40% of your money might do because there is a good chance that it will happen.

Personally, I have 10% of my money in Bitcoin and Litecoin. I feel that 10% is too much for me (being a more conservative investor), but I am a Bitcoin fanboy and I can't help it.

Hi jzcjca00,

Thank you so much for your thoughtful response :)

Interesting thread you launched too, I replied there also. I also missed your thread eventhough I scanned the speculation board a lot yesterday.


I like your tweak to have higher exposure to bitcoin when prices are relatively low, and have lower exposure to bitcoin when prices are relatively high. In fact I do that also but didn't want to complicate the initial opening post too much. Today for example I only have 15% exposure to bitcoins instead of my target 40%.

Just from a risk/reward perspective, it makes no sense to me to be highly exposed to bitcoin when the price has been going up parabolicly, doubling faster and faster, since then the risk for a serious correction, and serious loss, becomes higher by the day and in fact goes up to 90% certainty for a serious correction. Also the potential reward is going down continuously. At $15 end 2012 it could easily tenfold. But around $150, potential reward was only doubling, trippling, at best quadruppling.

So risk/reward becomes very bad. 80% chance to lose -75% of your capital, 20% chance to tripple your capital is a bad bet to take. So a good speculator doesn't play it. I however decided to always be in with some capital like you, but indeed I want the lowest possible exposure there. Inversely, when prices are depressed, like after 2011 bubble, risk/reward is very favorable. Only 20% chance for a serious correction losing -75%, and 80% chance to tenfold your capital in 1 year, is a great bet to take.


What I do is I base my allocation exposure on where the price is in relation to the 200 day moving average. So if price is equal to 200 day moving average I want my average exposure of 40%, if price is 600% above 200 day moving average I want only 10% exposure to bitcoin (maximum was 1200% above 200 day moving average at $30 in 2011, around $250 recently price topped at 900% above 200 day moving average). If price is -50% below 200 day moving average I want 80% exposure to bitcoin (maximum was -78% at $2.5 in 2011).  I do that all gradually.

I'm a little afraid to allocate 80% of my capital to bitcoin, how I will do it is buy in up to 50% of my capital, but when it goes up I won't be selling immediately, as long as price is -50% below moving average I will allow bitcoin to grow to 80% of my capital.


Your analyses how our strategies will fail is very good. It all depends on whether bitcoin will survive. We risk destroying our complete capital. This is another good argument I think in favor of buy and hold. If you decide to allocate certain % to bitcoin once, and then not touch it and only take some profit when certain price points are reached, never to use that profit to buy back in, you have a certain profit if bitcoin ends up failing, and you also have a chance to become filthy rich, which seems much harder with our strategies.

Interested what you think about this. I'm seriously contemplating switching strategy to buy and hold.

Thanks odolvlobo for your good critique. I would not want to lose 40% of my capital. But equally I also do not want to only double my capital when I succesfully invested in something that tenfolded in value.

Today bitcoin has tenfolded and I only succeeded in adding 50% to my capital. That's a bummer frankly. I saw the opportunity of bitcoin end 2012 around $10 and knew that this could easily tenfold. It happened much faster than I had expected, I thought 1-2 years. But I failed to capitalize on it decently. I think I made a serious error originally to allocate only 7% of my capital to such a good bet. In fact I allocated originally 5% and boosted it up quickly to 7% as I realized I wanted to at least double my capital if I proved to be right. Today the price has tenfolded and I didn't even succeed in doubling.

Capital serves as my security, but it also serves as a source of income and wealth creation. Finding the balance between that is difficult.

I am no longer supporting the philosophy 'only risk what you can afford to lose'. Because that will never make you money. It's putting security above risk taking. And security only leads to preservation, not growth. I decided both are equally important to me, so I decided on risking (on average) 50% of my capital on the best speculations I can find. Since the risk/reward of bitcoin is far superior than any other speculation I have seen, I choose to allocate almost everything of my risk capital to bitcoin.  

So if I end up losing 40% of my capital to bitcoin, I will feel bad, I will probably cry. And I will ask myself, was this really necessary? To take such a big risk? And my answer will be: it was a very good bet to take. A bet worth allocating a serious portion of my capital. But sadly it didn't work out. I will have to process the loss, cry it out, not self attack and move on, hopefully finding another opportunity and do exactly the same if the risk/reward looks also very good: Go for it. With my time, with my energy, and with my capital.  


What do you think of my defense? Is it making sense? Or do you see gaps in my reasoning?

No risk - no gain. If you are ready to risk and live dangerously,well, it's your money and go for it. Bitcoin is risky thingy, there is definitely chance you can make a killing with it but there's always a chance you could lose a lot.Up to each of us individually what to pick.

Oh yes, you thought I was again not sticking to my system :) I appreciate you point that out.

I meant to say I have 45% return on my capital today, and indeed have a target exposure of 40% to bitcoin. All the % makes it confusing I understand.

You summarize it shortly. I prefer to intellectualize matters in lengthy posts ;)

How much percent do you allocate to bitcoin?

You might be interested in the balancer bot:
https://bitcointalk.org/index.php?topic=181584.0
Its using a 50/50 allocation USD/BTC but it would be possible to hack the code to allow different allocation.

In a "normal" investing environment, expecting to double your money in 10 years is considered reasonable. So, doubling your money in a year might be considered very good.

You are wrong. You made a judgement based on your expectations. The fact that it didn't turn out as you expected doesn't mean your that judgement was bad. It means that your expectations were wrong. So, now you have different expectations. How do you know that these new expectations will be more accurate that the previous ones? You can now assume that your ability to predict the future is low and you can plan accordingly.

Here are some considerations when determining a level of risk:

1. If you are highly skilled or highly educated and you are reasonably certain that you can earn money regardless of the economic environment for many more years, then the level of risk you can incur is very high because if you lose all your money, you can always make more by working. If you lack any of those qualities, then the amount of risk has to be less. If you can't (or don't want to) work, then your level of risk must be extremely low.

2. If nobody depends on you then your are free to be as risky as you want. If others depend on you, then you must also consider their well-being.

3. Gambler's ruin: there is always a chance that you will lose everything. If you lose everything, then you have nothing to invest and you can never recover.

I don't do it that way, I've picked some amount to invest in bitcoins recently, it's pretty limited amount as I just bought a car and wasn't very liquid to invest more. Not sure I'd add much more even if I had fiat available though as I was late and price was already high, I'm not much attracted to invest at such prices, wish I had done it when you did.

Now trying to grow that up through trading, not bad so far but it's still small numbers so it's long way to go to make something from it (or lose them all, lol).

I agree with you and I might be losing touch with what's normal. I know my performance is very good compared to the average investor. But compared to many bitcoin investors here it's poor.

Comparing yourself with others is a bad idea. Setting your own goals is the way to go I believe. The tenfolding has happened and my goal to double my capital on that has not been accomplished. The explanation why is straigthforward. If I allocated 10% instead of 7% initially, and if I followed the buy and hold strategy, letting it grow, never sell, than today I would have doubled my capital, and today I would have 50% exposure to bitcoin.

Or if I follow my fixed allocation strategy and I had allocated originally 30%-40% to bitcoin and by now would have reduced it to 15% also, I would also have doubled my capital.

So lessons learned.

Today, I am setting a much higher goal. I want to not just double but fivefold my capital on the next rise from $100 to $1000, which I expect again to happen in 2-4 years. I will have to change strategies if I want to accomplish that. Risking 50% of my capital will be required. And a fixed allocation strategy won't cut it as I will have sold most of my coins when we reach $1000. I will have to buy and hold. And indeed, when we reach $1000 I will have 80% of my capital in bitcoin.

This strategy means I initially risk losing 50% of my capital and as it grows I will end up risking 80% of my capital if bitcoin were to fail one day.




I don't understand what you mean? I think I proved to myself that I was very good in 'predicting the future'. Timing was wrong, but end result was right. If my timing is wrong again, and say the next tenfolding only happens in 10 years, instead of 2-4, I still will reach my goal to fivefold my capital on the next tenbagger. I value your feedback.




Thanks for sharing, that was really interesting. Many bitcoin investors that I met and decided to go all in say that they can afford to lose that money as they have good jobs. I was resistant to that argument but you seem to confirm that too. For me I didn't bother building up any resume or career path, so little job security here, though I'm sure I could always find a crappy sales job, though would not make me happy. I am very dependent on my capital for security. I think I have high skills in investing, but if I end up losing 50% of my capital to bitcoin, my confidence in that will be shaken.

At the moment no one depends on me but I want to start a family within 2-4 years. So let's say bitcoin becomes depressed again like in 2011 and I have averaged down into it, I will be at a loss, and supporting a family will become hard, though still possible, if I am being frugal.

I hear you on the gamblers ruin. I think I take care of that by planning to risk maximum 50% of my capital in anything. Does that suffice?

I value your critical feedback. You posts help me in becoming more aware what I want, and what I do not want.

If you feel comfortable sharing I am also interested what goals and/or risk exposure you chose?

This kind of strategy can work very well. To keep it simple consider the following portfolio 50% BTC 50% USD. A different ratio can be used depending on the comfort level.  Keep most of the USD in say 30 day US Government T-Bills. Most of the BTC in a secure offline wallet. Keep a portion of the USD and BTC in an exchange say MtGox. The strategy is to profit from the fluctuations in the price so this works best during a market that is trading sideways with a lot of volatility. It is not the best during a long bull or bear run such as December 2012 - April 2013 or June 2011 - November 2011.

Now the key here is how long does one let the portfolio stay unbalanced during a bull or bear run? Waiting actually increases the risk but also the potential return. What I like about this strategy from a psychological point of view is that doing nothing, and not rebalancing, is actually the aggressive strategy.

Let's get this straight? You have no significant marketable skills? You intend to live off your "high skills" in investing? And you intend to start a family soon? And you've managed to earn a 45% gain on a 1000% run up? Or is that 45% of your total capital based on only investing 7%?

In response to your original strategy I see two fatal flaws. One is that in an adverse market it eventually leads to ruin. The other is that in an erratic and unpredictable market it will pit you against your own psychological responses endlessly. Eventually you will give in and trade or avoid trading because you cannot help yourself. Especially knowing that your system has the other flaw and that it is unknowable if you are getting close to ruin because of it.

I highly suggest finding a new source of income. The bitcoin economy is brand new and there are all kinds of openings for the entrepreneurial to establish themselves. I just wish I had the time to act on a couple of my own business ideas. One thing you do have right is that if you intend to trade and win you need to have a system with rules and stick to them. I went against my rules yesterday and bought at $166.40. Still feel better having my coins back even though we very likely will drop under $100 here. I too have wondered about the wisdom of allowing bitcoin to comprise a larger and larger portion of one's assets. I'm planning to hold at least until 2021 though. I think it will get interesting by that point.

The danger here is rebalancing the portfolio too soon during a long bull or bear market that does not have a lot of fluctuations. The recent December 2012 - April 2013 bull run is among the worst for this kind of strategy, but for many other periods of the Bitcoin market this kind of strategy has a lot of merit. An erratic market that is going nowhere is ideal for this strategy.

First off, thank you for the interesting thought experiment. Also, it warms my heart to know that my usual, overly long-winded posts might be somewhat at home in this thread ;)

anyhow, the strategy is interesting, but it's starting to make my head hurt. As a kind of thank-you for my newly acquired headache, I would like to posit an alternative strategy. (not feasible for some) -- My own investment began with the purchase of some mining equipment (I have very little capital to invest, so the amount of equipment I have is quite easy to manage... I expect this would be much more difficult for someone trying to invest large amounts)

I simply buy hardware. If I've made the purchase with fiat, I will sell the coins it mines until I've recovered the fiat. Once this threshold is reached, I sell half and hold half. This allows me to take some profits, and also to grow my bitcoin position. I feel that growing the position in bitcoin is important because of the potential for a great amount of profit down the road that I don't want to miss out on. Also taking profit along the way protects me in case of a catastrophic failure in bitcoin. (which is a very real possibility)

Purchasing the hardware in bitcoin however makes the whole thing quite messy, as I would have to mine until I had recovered the spent bitcoin before doing the 50-50 sell-hold strategy. With the increase in hashrate, the prices being asked (recent auction reaching 75 btc for 10 GH/s), it becomes less likely that hardware purchased in bitcoin will ever return an equivalent amount of coins. - If I could do it over, I would have bought the equivalent amount of bitcoin immediately, effectively pegging the price to the dollar.

I would prefer to treat Bitcoin mining as a strict Bitcoin play especially where the bulk of the cost is the capital cost as is the case with an ASIC. Consider the capital cost of the mining equipment as part the BTC component of the portfolio and apply a depreciation rate to the equipment based on the change in difficulty. So if the difficulty doubles since one acquired the equipment then is value of the equipment in BTC terms is half.

This keeps the question of the exchange rate between BTC and a fiat currency out of the equation of whether a particular investment in mining equipment makes sense or not.

You can't dismiss timing. Timing is important, especially for something as volatile as Bitcoin. The fact that you got 1 prediction half right isn't very convincing. I would be skeptical of your ability to predict the future, even when you are right.

In my many years of investing I have come to the conclusion that most investors would be better of just investing in an S&P 500 index fund. That certainly applied to me for the first 10 years. I thought I was good, but I was really just naive.

I could stop working now, but I make a lot of money and I just bought a house. I think I will work for another 5 years or so to help pay off the house. Here are my current investment allocations:

30% stocks split equally between US, foreign, and emerging
10% bonds
20% real estate
10% natural resources
10% gold
10% bitcoin
10% cash
Note: the 20% real estate used to be 10% hedge fund and 10% managed futures. The hedge fund did poorly and the managed futures fund was a stupid idea.

Thanks for sharing. Interesting to hear you also experience prices relatively high today. Good idea to try to earn more bitcoin through trading. I wish you good luck technique.

Very good summary. Indeed, buy and hold, doing nothing, although sold as the safest strategy, is indeed the most dangerous as it involves no locking in of profits.

The latter. I felt discomfort reading your questions. I do not value rhetorical questions lacking curiosity and judging me negatively. They don't help me make better decisions. I value criticisms, brought in a friendly manner containing arguments.


Thank you so much. That's a very valid critique you gave and enough of a reason to get rid of my strategy. Indeed, I am not willing to risk ruin via bitcoin and this 'fixed allocation' strategy will lead to that.

I already noticed that I gave up on balancing more and more as we went higher, and when it counted most I did it the least (around $250) because indeed my greed/brave part took over more and more.

I think you might be right that the same will happen when we hit bottom and depressed levels, especially since my strategy can lead to ruin. Very good point. I highly appreciate you took the time to point that out to me. 



I've thought about starting a bitcoin business. But is it not true that this would fail too if bitcoin fails? Why do you find it important that I find a new source of income?

I'm thinking of changing to a simple buy and hold strategy for bitcoin, and locking in some profits when certain milestones are reached but very slowly, hanging onto most of my coins, so that if bitcoin succeeds I become millionaire, and if not I only lose the capital I initially put in and nothing more. This would mean that I indeed let my bitcoins grow to ever larger percentage of my capital. 

I'm sorry to hear you bought at $166, that sucks. What trading rules do you follow normally?

Ahh, "locking in the profit". It is such a misleading expression. What does that actually mean?

"Locking in the profit" is really a reallocation of assets. Suppose you decide that you want your bitcoins to be 50% of your assets, and then it doubles in price, so now it is 75%. Since you want to keep it at 50%, you must sell some bitcoins and buy some other assets (perhaps even cash). That's what "locking in the profit" means. It is important to remember that you are not locking in anything, you are really moving your wealth from one asset to another.

Another similar expression is "playing with the house's money". The idea is that if an investment goes up, you sell enough of the asset to recover the original purchase price. Then, if the remainder of the asset later goes to 0, you can tell yourself that you didn't lose any money. Of course, that is not rational, and it is something that in inexperienced investor would do. The purchase price of asset has no bearing on the current value of an asset, and you are never playing with the house's money -- you are always playing with your money.

You are right. Timing is important. And my talent to predict the future is low.

However, I do believe that I am a good speculator. This involves not really predicting the future, but evaluating risk and reward and placing bets accordingly. The Kelly method learned me that it makes mathematical sense to bet more capital on something with a higher risk/reward ratio. Timing is indeed an important part of that risk/reward evaluation.



Agreed. I think the Permanent Portfolio is a better solution as an SP500 index fund as it protect your capital in different economic climates.


Interesting. You have a very diversified portfolio and I'm sure whatever happens you will keep most of your capital.

Are you balancing bitcoin, buying more when it goes below 10%, selling when it goes above?

Sounds like a decent way to approach investing in bitcoins.

I would suggest this as a good approach, but I would suggest one taking this approach should not check the prices too often. A good thing to do is have a few orders to buy and sell up on the exchanges at +/- 10, 20, 50% from current price just so you don't miss any sudden swings up or down.

Welcome! :) Feel free to go in depth ;)


I like your strategy very much. You combine security with growth in a very simple and straightforward way.

I like your attention to the security part especially. Since you take out fiat for equipment + fiat for profit. I think most miners forget the second part and only build up equipment + coins, which indeed means that they'll have nothing if bitcoin fails.

Do I understand correctly that if you could do it over you would not do mining altogether?

I agree that mining can in the long run never be as profitable as simply buying coins. The same is true for any btc stock. Even satoshi dice. Today it's not the moment to dump mining and stock but once bitcoin prices are close to the 200 day moving average again I think it's financially more profitable to allocate all speculative capital to bitcoins. Except if you have a good company idea, that is more original and profitable than mining.

If I copy your straightward strategy to bitcoins, it means buying the bitcoins and from time to time lock in some fiat profit. For example, every time it doubles, sell 5% of the btc.

Your post is fine. Asset allocation is a great strategy. My own long term strategy is similar, but I tend to invest for cashflow and instead of selling, I prefer to buy what looks cheap. This allows me to re-use past analyses of my investments and build a long-term picture of how my assets are doing. it also helps me evaluate new investment opportunities. If it doesn't look at least as attractive as what I am in now, I don't need to bother.

You are right that locking in profits just means converting one asset into the other. However, if this other asset is more safe then indeed you are converting from a more risky asset into a more safe asset. If this asset is the safest available, it is fair to say you are locking in profits. So I think this expression is not misleading.

However I fully agree with you that 'playing with the house money' is not true. Thanks for explaining in detail why. It leads also to poor speculation decisions as you erroneously think you have not much to lose. Many people make that error when investing in bitcoins and often I am tempted to say that too, 'it's only profit I'm losing' but always correct myself saying: 'no, it's my capital I am losing'.

I've been thinking more about my fixed allocation strategy and the doubling down into ruin can simply be avoided by creating a limit to how much can be bought.

For example, I plan to scale up my exposure to 50% bitcoins if it gets highly oversold again comparable to the crash in 2011 around $3. However, once I bought this 50% I must stop and never buy again. So that if this time bitcoin does not recover and continues to go down, and my exposure becomes less than 50% again, I stop buying so that I cannot lose more than 50% of my capital.

I think I can do the same to the upside. I plan to reduce my exposure to 13% again if bitcoin goes into highly overbought territory comparable to 2011 and recent 2013 bubble, but since it is bitcoin it is theoretically possible that it goes up a lot more sometime in the future, never to go back to current levels again. So I can also put a limit on how much bitcoins I sell. Once I sold down to 13% exposure, even if it goes up again (due to the continued rise) to more then 13% exposure, I should stop selling, so that I never sell too many bitcoins never to be recovered again.

Sounds like a more robust strategy to me. I'd feel strange reducing my exposure to bitcoin to just 13% in the heights of a roaring bull market though. One thing I consider you haven't mentioned (and maybe you don't care) is I try to avoid taking a nominal cash profit and creating a taxable event while we're still in the early years for bitcoin. If this thing is as great as we think it is we should be able to do the Warren Buffett move and just hold forever. Eventually we can take out fiat loans for living expenses at a lower interest rate than the expected rate of return of the cryptocash holdings thereby paying no taxes and not reducing our earnings as it appreciates.

Very good tip. Thanks for your validation.

Man, don't let greed to take over, and don't fool yourself. BTC has high rewards because it's very risky. That's why allocating 50% of your resources might not be wise. Sure, it depends on your situation, for some risking 80% of their resources could be worth it (because they're young and they can make back that money working quite easily, or because they don't have a family to look after), but for the average joe an exposure of 40%/50% to BTC is not wise.

You take for granted BTC will tenfold again - sure, we all agree is probable, but you must acknowledge it's also very possible it goes to 0.

And you may just be happier working on some real economy unrelated to pure speculation, while holding a BTC stash you're confident with, not constantly checking for the exchange rate

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. :(

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.

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 :(

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.

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.

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.

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.

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?  ;)

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

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.

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).

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?'

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.

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.

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.

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.

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?

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.

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://bitcointalk.org/index.php?topic=181584.0

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.