This topic is unique among my many informative threads. It was reddited twice and received over 5,000 readers in the first 24 hours. Thank you!Introduction
Bitcoin has made many rich. Consider the guy who sold two pizzas for
BTC10,000. The about $20 investment has turned to $10 million - a nice 500,000x gain in less than 4 years. But what if he sold it all when the price first doubled? Then instead of millions, he would have netted $20.
Even worse, some have actually lost money with bitcoin. Buying at the tops and selling at low points is the fate of many who do not have any strategy in their actions.
It is also actual money that you lose if you do not buy, or buy with a smaller amount than you could have bought, or at a higher price than you could have bought, considering the circumstances. All my friends would have become $millionaires by now, had they acted rationally since the day the heard about Bitcoin. Even I would probably have 2-10x more coins with no corresponding increase in risk.
The past cannot be changed, but there are enough gains waiting for us in the future to amply reward those who care to exercise their logic and invest rationally.
Bitcoin is a disruptive technology that has the potential to change the world even more than the Internet has done. If this indeed happens, the inbuilt dynamics make it happen relatively soon (by the end of the decade, at maximum). In this scenario, the value of the currency unit will have increased really much. The pizza is quite near the low-water mark of bitcoin trades, and the 500,000x gain since it, can be taken as the bitcoin value appreciation until now.
How much can bitcoin go up from here? A few months ago I had a strong realization that bitcoin's market cap could reach that of gold, which would translate to $300,000 per unit. That would be a mere 300x increase from current levels. Considering that 12-months trailing average shows almost 100x, this could conservatively be achieved in 2016, realistically in 2015 and possibly in 2014. A
longer-term trendline analysis extrapolated, shows 8/2016.
But going even further, comparing Bitcoin to gold (borrowing the analogy from Zangelbert), would be akin to comparing email to postal letters. The new technology not only effectively replaces the old, but also brings so many other benefits that you cannot imagine them before seeing. In email's case, you could for example link all information in the world to your post, it would reach the recipient instantly, and not cost anything. Bitcoin does the same to something that is way bigger than the industry of delivering mail - the monetary system. A comparison to gold is probably not at all enough. The comparison to all dollars, all fiat currencies, or all liquid financial instruments may still be an underestimate. On the other hand, if something so good happens to the debt-ridden world, even those who did not buy any bitcoins, are mostly better off.
Then there is the flipside of the coin: the disruptive technology is still on beta. So far all is fine, but nobody gives any guarantees. Despite that by reading about Bitcoin you gain more confidence towards it in all levels, there still are many known threats and dangers, technical and political, and sometimes also unknown things happen. Unbelievably few understand bitcoin even now. It is an unknown thing to them. To keep things simple, we postulate that Bitcoin is in a constant danger of self-annihilating, and its exchange value going to zero. This is not necessary the most realistic negative option, but serves as a good counterweight to the mindblowing positive case.
SSS SystemIn investing Bitcoin, the odds are so much on your side that there is no reason to take any risks. If it goes up, any number of bitcoins makes you rich, and even if you have zero, you will still be richer than before Bitcoin (I do not own any shares of Facebook, but acknowledge its importance and the benefits that I get for free). If it goes down, you should only lose slack money, money that you did not need anyway. You
cannot lose more than you put in, so don't put in more than you
can afford to lose and you'll be all right, even in the most negative case.
First you need to find out how much you have. To keep keeping things simple, take first aside all the things that you need. They are not counted. Then calculate the resale value of the rest of your things, subtract all debts, and you find your
financial net worth. Since house is so big, you should count house equity toward the total, but if you prefer thinking it as separate, you can also decide that you 'need' it and not count it. In this case, do not subtract the mortgage either.
Then you select the rake. You know the concept from poker establishments: some percent of all winnings goes to the house. With bitcoin we except great gains, so we want to 'tax' them to increase our living standard, or just to keep some diversified in case the negative event happens and bitcoins lose their value. The rake is the percentage to set aside, every time that the price doubles. If for example you select 10%, this will lead that 20% of your portfolio is in non-bitcoins and 80% in bitcoins. If you select 20%, the result is 40% in bitcoins/60% non-bitcoins.
For most of us, the previous percents sound extreme. But they are my recommendations. Remember, you do not need to invest more than you can afford to lose. In purist case, selecting a 10% rake would require you to invest 80% of your liquid wealth in bitcoins. But if that does not feel comfortable, you can invest 10% instead. In this case you can boost the accumulation by not raking your pot in the first doublings, only after it has increased to your target of 80% of your financial net worth.
The price now is about $1 per m
BTC. (It is very much likely that we will spontaneously revert to m
BTC when the average investment is no more even one bitcoin. So let's start it now.) First doubling is at $2, then at $4, $8, $16, $32, $64, $125, $250, $500 and $1000. So there are 10 doublings in total, which take the price up 1,000x. In the end, one bitcoin is worth $1 million, and one dollar is worth quite much less than it is now. The plan ends there because the world will look very much different. Before that, you stick to the plan: if it goes to zero, you net a small gain or a small loss.
Let's take an example of a person who only now finds bitcoin, has $50k in liquid assets, but is unwilling to risk more than $10k. His rake level is 10%, which starts immediately.
Price mB mB k$ mB other total BTC%
left sold out val. val. value
2 9000 1000 2 18 42 60 30 %
4 8100 900 4 32 46 78 42 %
8 7290 810 6 58 52 110 53 %
16 6561 729 12 105 64 169 62 %
32 5905 656 21 189 85 274 69 %
64 5314 590 38 340 123 463 74 %
125 4783 531 66 598 189 787 76 %
250 4305 478 120 1076 309 1385 78 %
500 3874 430 215 1937 524 2461 79 %
1000 3487 387 387 3487 911 4398 79 %
The important parameters are:
- Purchased 10,000m
BTC, in the end he still has 3,487m
BTC.
- Recovered initial investment of $10k in full when m
BTC hits $8.
- In the end his fiat+other stuff stash is worth $0.9 million.
Discussion and tweaksIt is important to buy in as soon as possible, because waiting has in general not been a good strategy with bitcoin. Even if price drops afterwards, you should not feel any remorse at all - we are counting towards $1 million or nothing. If 'nothing' happens, you lose as many dollars, regardless of purchase price. If $1 million happens, then yes you have a smaller number of coins, but think how many are not even reading this advice, much less acting on it! Buy, and do it now. And only with funds that you can afford to lose. If you buy, and it crashes, but you have gained more determination that it is a good thing in the meanwhile, you can buy more.
When the plan is underway, and it crashes, I don't advice to buy back. Enjoy your rake rather. Bitcoin may continue to go down, you don't know it. Even if it goes to zero, you will have gained. If you need to pay taxes on the realized gains (as most of us do), it makes even less sense to go in and out.
If you want to daytrade, do it entirely separate from this, so that your daytrading has no effect on the execution of SSS plan and vice versa. In the end you will see, which one was more profitable and better use of time.
It is possible to make the selling effectively continuous, instead of discrete. You just send 10% of your coins to an exchange and divide the next doubling to small enough increments (say, 10 of them) and list your coins for sale. This way you get to sell every time the price rises to a new ATH. Because ATH's happen on times when Bitcoin is ahead of the trend, the timing of the selling is better than average.
It is entirely your own decision, how to allocate the non-bitcoin portfolio. Local differences dictate the prudent course of action.
