(SSS) - A Sane and Simple bitcoin Savings plan

[rpietila]

Thanks for the swift and thorough reply.

Have another question. If one uses your adviced strategy of cashing out (rake) at set intervalls should one not take the exponential trend line into account? Let's say we are well behind the trend and we just hit a target. Is it really wise to sell 10% in this case? If you answer no I'm thinking one has to set some exception rules to the outlined plan before hand.

LOL I was considering that matter going back and forth whether to include it or not when I wrote the post.

THEN I realized that new highs are never reached when you are behind trendline It is mathematically practically impossible.

Again - for most of people, I think it is most important to sell exactly according to schedule, because any deliberation leads to suboptimal results. With bitcoin, you only ever lose money by daytrading. The strict schedule guarantees you exactly a certain amount of bitcoins when they are worth a million a piece.

For most of us, the problem is selling too much too early, and it will be achieved also if you are acting greedy and try to postpone selling. When the price crashes, you then get emotional and sell in the bottom, hoping it will go down more and you will be able to buy back. Most of the time you cannot, and either lose bitcoins or lose bitcoins. Losing bitcoins is bad because you will need them when the price is higher.

If your rake% is zero, you will have all your bitcoins (10,000mBTC in this example) when we hit the target ($1M), but no rake.
If your rake% is 5%, you will have 5,987mBTC and total rake of $665k. (I like it when USD is measured with k and bitcoins with m   )
If your rake% is 10%, you will have 3,487mBTC and total rake of $871k.
If your rake% is 15%, you will have 1,969mBTC and total rake of $842k.
If your rake% is 20%, you will have 1,074mBTC and total rake of $712k.
If your rake% is 25%, you will have 563mBTC and total rake of $556k.
If your rake% is 30%, you will have 282mBTC and total rake of $411k.

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[molecular]

I agree this is a great strategy and am using a variant myself.

However, for newcomers (people buying bitcoin for the first time), I think a slight variation on...

It is important to buy in as soon as possible, because waiting has in general not been a good strategy with bitcoin.

...can be used: The initial investment can be made in steps (dollar-cost average), albeit as quickly as comfortably possible. Of course this is subobtimal in situation like now when we're rallying, but it also protects the psychology of the investor in case of a harsh drop right after the buy-in.

[rpietila]

Newb mistakes:

- After hearing about bitcoin, discredit it based on horrendously misguided and biased 'information', derived from mainstream sources.
- Waiting several months or years, during which time the price appreciates 1 or several orders of magnitude.
- Deciding to buy after the next dip, leading to panic buying near the top before the next crash.
- Buying too late and with too great % of portfolio, instead of as early as possible with quite small cash outlay.
- Selling after a runup in anticipation of a crash. (Only sell when you are manic to buy since 'it's going to the moon')
- Selling after a crash in anticipation of buying back cheaper. (Never happens, sorry.)
- Selling after a too small gain with no strategy and no need for the funds ("I sell after 20%, 50%, 100%..." <-dude, bitcoin's appreciation so far is 50 MILLION %, want to reconsider..??")
- Selling, because you believe bitcoin has reached a 'bubble top' or a 'fair value'.
- Selling a too great % of holdings, such as going totally in and out.
- Selling.

[molecular]

Newb mistakes:

- After hearing about bitcoin, discredit it based on horrendously misguided and biased 'information', derived from mainstream sources.
- Waiting several months or years, during which time the price appreciates 1 or several orders of magnitude.
- Deciding to buy after the next dip, leading to panic buying near the top before the next crash.
- Buying too late and with too great % of portfolio, instead of as early as possible with quite small cash outlay.
- Selling after a runup in anticipation of a crash. (Only sell when you are manic to buy since 'it's going to the moon')
- Selling after a crash in anticipation of buying back cheaper. (Never happens, sorry.)
- Selling after a too small gain with no strategy and no need for the funds ("I sell after 20%, 50%, 100%..." <-dude, bitcoin's appreciation so far is 50 MILLION %, want to reconsider..??")
- Selling, because you believe bitcoin has reached a 'bubble top' or a 'fair value'.
- Selling a too great % of holdings, such as going totally in and out.
- Selling.

So, #1 newb mistake: SELLING.

[rpietila]

Newb mistakes:

- After hearing about bitcoin, discredit it based on horrendously misguided and biased 'information', derived from mainstream sources.
- Waiting several months or years, during which time the price appreciates 1 or several orders of magnitude.
- Deciding to buy after the next dip, leading to panic buying near the top before the next crash.
- Buying too late and with too great % of portfolio, instead of as early as possible with quite small cash outlay.
- Selling after a runup in anticipation of a crash. (Only sell when you are manic to buy since 'it's going to the moon')
- Selling after a crash in anticipation of buying back cheaper. (Never happens, sorry.)
- Selling after a too small gain with no strategy and no need for the funds ("I sell after 20%, 50%, 100%..." <-dude, bitcoin's appreciation so far is 50 MILLION %, want to reconsider..??")
- Selling, because you believe bitcoin has reached a 'bubble top' or a 'fair value'.
- Selling a too great % of holdings, such as going totally in and out.
- Selling.

So, #1 newb mistake: SELLING.

Selling is the root of (nearly) all mistakes.

[rpietila]

It's already on reddit.

fuck.

No, it's great. Imagine how healthy the community will be after all the newbs learn to handle their coins responsibly!

EDIT: Risto, did I spell your last name correctly? I didn't think it was an "ä", but that's what I found.

Yeah, it is "ä", although I don't really care and use "a" myself outside N.Europe.

[rpietila]

If your rake% is zero, you will have all your bitcoins (10,000mBTC in this example) when we hit the target ($1M), but no rake.
If your rake% is 5%, you will have 5,987mBTC and total rake of $665k. (I like it when USD is measured with k and bitcoins with m   )
If your rake% is 10%, you will have 3,487mBTC and total rake of $871k.
If your rake% is 15%, you will have 1,969mBTC and total rake of $842k.
If your rake% is 20%, you will have 1,074mBTC and total rake of $712k.
If your rake% is 25%, you will have 563mBTC and total rake of $556k.
If your rake% is 30%, you will have 282mBTC and total rake of $411k.

This is the proof that 10% is the optimal rake. You get the most cash out, and also your remaining value in bitcoins is a remarkable 3,487mBTC.

It is good the remember that when we hit $1,000 per minicoin, there are probably only 13 billion mBTC circulating (subtracting lost coins and Satoshi coins). It is 2mBTC per person, ie. the average bitcoin wealth per person in the world is $2,000. In this sense having 1,743 times more could be considered hoarding  

[Zangelbert Bingledack]

minicoin

Nice. That sounds plausibly like what they may be called. Or just a "mini" when speaking fast. "That'll be 25 mini."

[rpietila]

minicoin

Nice. That sounds plausibly like what they may be called. Or just a "mini" when speaking fast.

Remember its initial price target is $1,000. But oh well that is not much these days...

[alexeft]

This is the proof that 10% is the optimal rake. You get the most cash out, and also your remaining value in bitcoins is a remarkable 3,487mBTC.

Fallacy: bitcoin IS cash.

[rpietila]

This is the proof that 10% is the optimal rake. You get the most cash out, and also your remaining value in bitcoins is a remarkable 3,487mBTC.

Fallacy: bitcoin IS cash.

This thread is aimed for newbies. We don't have a problem re:squandering our bitcoin wealth and don't need a fixed plan, do we?

[xDan]

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?

[jmw74]

If your rake% is zero, you will have all your bitcoins (10,000mBTC in this example) when we hit the target ($1M), but no rake.
If your rake% is 5%, you will have 5,987mBTC and total rake of $665k. (I like it when USD is measured with k and bitcoins with m   )
If your rake% is 10%, you will have 3,487mBTC and total rake of $871k.
If your rake% is 15%, you will have 1,969mBTC and total rake of $842k.
If your rake% is 20%, you will have 1,074mBTC and total rake of $712k.
If your rake% is 25%, you will have 563mBTC and total rake of $556k.
If your rake% is 30%, you will have 282mBTC and total rake of $411k.

This is the proof that 10% is the optimal rake. You get the most cash out, and also your remaining value in bitcoins is a remarkable 3,487mBTC.

It is good the remember that when we hit $1,000 per minicoin, there are probably only 13 billion mBTC circulating (subtracting lost coins and Satoshi coins). It is 2mBTC per person, ie. the average bitcoin wealth per person in the world is $2,000. In this sense having 1,743 times more could be considered hoarding  

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?

[rpietila]

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?

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.

[alexeft]

This is the proof that 10% is the optimal rake. You get the most cash out, and also your remaining value in bitcoins is a remarkable 3,487mBTC.

Fallacy: bitcoin IS cash.

This thread is aimed for newbies. We don't have a problem re:squandering our bitcoin wealth and don't need a fixed plan, do we?

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.

[Jutarul]

...

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.

[maz]

Newb mistakes:

- After hearing about bitcoin, discredit it based on horrendously misguided and biased 'information', derived from mainstream sources.
- Waiting several months or years, during which time the price appreciates 1 or several orders of magnitude.
- Deciding to buy after the next dip, leading to panic buying near the top before the next crash.
- Buying too late and with too great % of portfolio, instead of as early as possible with quite small cash outlay.
- Selling after a runup in anticipation of a crash. (Only sell when you are manic to buy since 'it's going to the moon')
- Selling after a crash in anticipation of buying back cheaper. (Never happens, sorry.)
- Selling after a too small gain with no strategy and no need for the funds ("I sell after 20%, 50%, 100%..." <-dude, bitcoin's appreciation so far is 50 MILLION %, want to reconsider..??")
- Selling, because you believe bitcoin has reached a 'bubble top' or a 'fair value'.
- Selling a too great % of holdings, such as going totally in and out.
- Selling.

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

[kdrop22]

I agree this should be on reddit for the newbies.

Rpietila, if you don't have an account there or don't want to post this on reddit, I can do it for you (of course linking and clearly specifying the author)

It's already on reddit.

fuck.

I searched for "SSS" and it didn't show up.

well, in that case I just made a repost: http://www.reddit.com/r/Bitcoin/comments/1rd8lc/risto_pietil%C3%A4_sss_a_sane_and_simple_bitcoin/

can you link the other post?

EDIT: Risto, did I spell your last name correctly? I didn't think it was an "ä", but that's what I found.

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/

[johnyj]

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

[wannasurf]

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.