(SSS) - A Sane and Simple bitcoin Savings plan

[rpietila]

OP... I bought 10 BTCs for about $6900 and I don't want to look back until 2015

$6.9k is not something I can "afford to lose" since it's pretty much most of my savings at this point... but I am single, have no debts and have a job so incase bitcoins really pick up I want to take that risk of losing ~$7k when I can potentially become a millionaire. Do you think this is stupid of me? And how confident are you on the success and mainstream adoption of Bitcoin? I just want your opinion since you sound pretty smart.

sounds fine for me. Just stick to the plan so before long you will also have regained your initial investment.

(Or lost it all, but that is the risk we'll have to take.)

In the long run, there will only be about 1,000,000 people with a whole bitcoin. If you manage to keep 1/10 of your stash permanently, you are among this group. Not bad really.

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[troy112]

And yes i reconn that dollar cost averaging won't do much good, simple because bitcoin has been increasing more times than decreasing. So,in turn you'll end up paying more bit coins then you could pay initially.

[wachtwoord]

And yes i reconn that dollar cost averaging won't do much good, simple because bitcoin has been increasing more times than decreasing. So,in turn you'll end up paying more bit coins then you could pay initially.

Well of course Dollar cost averaging isn't going to do much good in the general case. That's not the point (also for stocks).

The point of Dollar cost averaging is to sacrifice a bit of upside for a lower volatility. If you start accumulating right before a market crash there will be a huge difference in the favor of Dollar cost averaging.

If you don't care about volatility AT ALL, and just want to maximize EV, by all means don't Dollar cost average. Of course this isn't a yes or no question and you can divide you purchase in as many discrete purchases over as long a time as you like to make your own decision with respect to minimizing volatility and maximizing EV. It's completely natural and understandable to want to minimize volatility during the buy in period, especially with respect to something as volatile as Bitcoin.

Disclosure: My initial Bitcoin purchase has not been a Dollar cost average purchase but rather one buy and all my subsequent purchases have been really erratic both in size and in timing.

[rpietila]

About dollar cost averaging, my thoughts :
- in a normal stock market it is used to lower the volatility, and if used carefully (buy or sell once a month - or even only twice a year) you can avoid most bubbles
- in Bitcoin's universe, where everything goes so fast, it can make sense to do a DCA twice a week during a one or two months period once you really believe in it. In that case you are probably sure to avoid most bubbles/crashes such as the last or the current one.

What do you think of that ?

I would rather do this way (as a guide to newbies):

1. Buy with a small amount as soon as possible (upon first hearing about this, it is unlikely that anyone will invest more than 10% of net worth, more likely 1%).

2. Every time you gain confidence in Bitcoin, buy more. Do not consciously DCA, because your inability to appreciate Bitcoin fully in your first day automatically serves as DCA

3. When the combined effect of your purchases and bitcoin's value appreciation results in you having more than half of your net worth in Bitcoin, select a "percentage of other assets" you want to have as a hedge in your portfolio. The "rake" % is always half of "other assets" %, if the rake is taken after each doubling in price.

If you are already in, you can start following the plan from (2.) or (3.).


A further word about the optimal rake%:

I suggest you use 10-20% rake. This lets you keep 35% (in case of 10% rake) or 11% (in case of 20% rake) of your bitcoins when their value goes to $1,000/mBTC.

- If you use only 5%, it takes quite long before you cash out any meaningful amount, which is risky. Also your portfolio tends towards 90% bitcoins/10% everythingelsecombined, which makes most of us too emotional.

- If you use 0%, you go crazy. Many can live with this as long as bitcoins are a small % of their portfolio, but start making mistakes (such as selling 90% of the holdings, at the instant they appreciate so that he can buy a new house) when the percentage grows bigger. Better be disciplined, set a schedule to sell, and follow it. (You may skip the first several doublings if your capital is small and you want to quickly grow it.)

- If you use 30%, you only retain 3% of your bitcoins, which I think is suboptimal. If you are so concerned about getting your fiat value back, I suggest you let it go up to the second double, and then repatriate the original investment.

Better get used to the idea that it is very improbable that you will have the same number of bitcoins when their purchasing power is 1000x higher than now. In astute cases, I think you have shed 2/3 of them, whereas most have only 1-10% of the amount that they now have.

The same happened when Bitcoin was $0.5 until now. If someone has 35% of the bitcoins he had that time, he is very smart (and very rich).

[Adrian-x]

If someone has 35% of the bitcoins he had that time, he is very smart (and very rich).

Or small and not rich

[Rampion]

...

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.

Exactly. Good post indeed, Risto

[kdrop22]

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

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

Am I missing something?

I don't think you should buy in at this time. You are doubling your exposure, while increasing your holdings by only 3%. Your best option is to hold, however if Bitcoin's exceed 50% of your portfolio, then you should consider raking.

[rpietila]

If someone has 35% of the bitcoins he had that time, he is very smart (and very rich).

Or small and not rich

What is the smallest conceivable investment, $50?

That means, 35% of it is now $35,000.

[RAJSALLIN]

Rpietila,
I am thinking about your model and if and how I'm going to implement it. I'm not a total newbie when it comes to investing and i was thinking about a slightly more advanced model.I don't think I can ignore the exponential trend and so I think one alternative model should be one where you can buy back if the trend goes under the curve after a recent rake hits. What's your take on this idea? Thanks again.

P.s. Thanks for your time on this forum and your positive energy. May you find a nice castle.

[jmw74]

Rpietila,
I am thinking about your model and if and how I'm going to implement it. I'm not a total newbie when it comes to investing and i was thinking about a slightly more advanced model.I don't think I can ignore the exponential trend and so I think one alternative model should be one where you can buy back if the trend goes under the curve after a recent rake hits. What's your take on this idea? Thanks again.

P.s. Thanks for your time on this forum and your positive energy. May you find a nice castle.

Somebody should make a javascript calculator with all the knobs so you can compare various strategies and outcomes.

[toddfletcher]

I've just been working on a simple JS calculator based on a spreadsheet I created a few days ago:
--> http://xzist.org/amazing-bitcoin-retirement-fund-calculator/

It's not exactly how rpietila describes, it's more aligned to my own personal goals... and I am a complete novice in anything to do with investing.. but I added a 10%, 20% preset rake buttons which I think works how it's supposed to.

only briefly tested, on Firefox and Chrome and *not* IE, tired and going to sleep now, will bugfix and check another day

I'm finding this really useful for quickly running through scenarios. Awesome work, thanks!

[fred1111]

http://xzist.org/amazing-bitcoin-retirement-fund-calculator/

Very useful! It should be pointed out that it is currency agnostic.

[Adrian-x]

If someone has 35% of the bitcoins he had that time, he is very smart (and very rich).

Or small and not rich

What is the smallest conceivable investment, $50?

That means, 35% of it is now $35,000.

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.

[BlueTemplar]

Thank you for your feedback, but:

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

Other points are correct.

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

I think that's right, but for another reason : if you're new in bitcoin, then it's statistically more likely that a crash is about to happen (because of how the hype machine and bubbles work). So in that case, spreading the purchases over some time is probably better indeed. Or you could wait to buy after the crash, but in bitcoin's case it might be risky, because if you noticed the bubble early enough, the low after it pops might be higher than when you were ready to buy at the first time.

?

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 :

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.

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.

[silversurfer1958]

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.

[aylwood]

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.

[RAJSALLIN]

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.

[bernard75]

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

[Rampion]

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

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.

[Lewis2]

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.