(SSS) - A Sane and Simple bitcoin Savings plan

[Peter R]

The problem I see here is that, while a great savings/investment plan, it seems to be assuming that BTC will just keep going up indefinitely at some radical rate of growth.

Here is a log chart of bitcoin's historical market capitalization, along with what I refer to as its (adoption-based) "Metcalfe Value."  This chart empirically shows two things:

(a) bitcoin's market cap has grown roughly proportional to the square of these two chosen measures of "adoption."
(b) "adoption" (based on these two measures) has grown roughly exponentially for five years.  

Will bitcoin adoption continue to grow?

[1715030365]

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[1715030365]

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[rpietila]

The problem I see here is that, while a great savings/investment plan, it seems to be assuming that BTC will just keep going up indefinitely at some radical rate of growth.

Here is a log chart of bitcoin's historical market capitalization, along with what I refer to as its (adoption-based) "Metcalfe Value."  This chart empirically shows two things:

(a) bitcoin's market cap has grown roughly proportional to the square of these two chosen measures of "adoption."
(b) "adoption" (based on these two measures) has grown roughly exponentially for five years.  

Will bitcoin adoption continue to grow?

This is the post, the chart, and the question that everyone who has heard about Bitcoin should be confronted with.

Btw. do you have a theory about which one is leading the other? It seems to my old eye that in >50% of the cases price has been leading the transaction growth, but judging from a laptopscreen is not the way to do research...

[Peter R]

Btw. do you have a theory about which one is leading the other? It seems to my old eye that in >50% of the cases price has been leading the transaction growth, but judging from a laptopscreen is not the way to do research...

Hopefully soon I will get around to running a cross-correlation analysis to better understand the lead/lag behaviour.  But you are correct that price leads (these measures of) adoption at least at the market-cap transition points (e.g., price begins to fall during a crash while the Metcalfe value is still increasing).  

My feel is that during the growth spurts, price leads adoption.  And then during quiet periods, committed bitcoin users find new uses for bitcoin (thereby growing the BTC economy and slowly increasing adoption).  Eventually enough price pressure builds and a new growth spurt begins.  

[SlipperySlope]

Here is a log chart of bitcoin's historical market capitalization, along with what I refer to as its (adoption-based) "Metcalfe Value."  This chart empirically shows two things:

(a) bitcoin's market cap has grown roughly proportional to the square of these two chosen measures of "adoption."
(b) "adoption" (based on these two measures) has grown roughly exponentially for five years.  

Will bitcoin adoption continue to grow?

This is the post, the chart, and the question that everyone who has heard about Bitcoin should be confronted with.

Btw. do you have a theory about which one is leading the other? It seems to my old eye that in >50% of the cases price has been leading the transaction growth, but judging from a laptopscreen is not the way to do research...

I have been watching the adjusted transaction quantities reported by Blockchain.info for a reversal. I believe price is leading transaction quantity, to the extent that price and transaction quantity are weakly independent. There is a hint now of a reversal to confirm what we have seen in price action for a few days.

https://blockchain.info/charts/n-transactions-excluding-popular?showDataPoints=true&timespan=30days&daysAverageString=1&scale=1&address=

Chart display options include a 7 day average, and also a longer duration of data.

[dogechode]

It is wise to remember that in all investments, historical performance is no guarantee of future performance.

[SlipperySlope]

It is wise to remember that in all investments, historical performance is no guarantee of future performance.

It is pragmatic to set aside conventional wisdom, but not mathematics, when analyzing the adoption of an unprecedented disruptive financial technology.

For example, nothing we ever experienced would help us understand the future value of a deflating currency. The price series suggests that given a fixed limit of 21 million bitcoins, the value will continue to trend higher as it has done in the past. Mathematics and statistical evidence of adoption rates may allow us to recognize the halfway point of adoption as it happens, at which point the exponential rate of price increase will rapidly diminish.

Those who wait for bitcoin price increases to be guaranteed will be very late adopters.

[rpietila]

It is wise to remember that in all investments, historical performance is no guarantee of future performance.

It is pragmatic to set aside conventional wisdom, but not mathematics, when analyzing the adoption of an unprecedented disruptive financial technology.

Don't want to cross-post a third time so please see the link for the mechanism.

[dogechode]

Is there any point on your charts prior to this year when the price dropped down to less than 1/3 of the all-time-high (at that time)? Ie once it hit $100 did it then even drop below $33? Once it had reached $300 did it ever drop below $100?

[Peter R]

Is there any point on your charts prior to this year when the price dropped down to less than 1/3 of the all-time-high (at that time)? Ie once it hit $100 did it then even drop below $33? Once it had reached $300 did it ever drop below $100?

You can compare % rise and fall directly from a log chart (that's one of the reasons they are so useful):

The largest drop ever was in 2011 when it fell from approximately 90% between peak and trough.

The second largest drop was in early 2013 when it fell approximately 80% between peak and trough.

The third largest drop was just recently when it fell approximately 70% between peak and trough (at least so far).

[dnaleor]

I will start using your system when BTC hits 1000 USD:

I will sell 10% of my "HODL stash" between 1000 and 2000 USD (so 1% @1000, 1% @1100, 1% @1200, ...)
When we double to 2000 USD, I will sell 10% of the remaining stash between 2000 and 4000 USD (so 1% at 2000, 1% at 2200, 1% at 2400, ...)

I bought in between 50 and 200 USD, so I will start with a decent profit
(And as a poor student, I can use the money)

thx for sharing!  

[zimmah]

It is wise to remember that in all investments, historical performance is no guarantee of future performance.

it's not a guarantee, but it's still the best indicator to use.

[elg]

nice plan, ty risto

[dnaleor]

I am actually plotting my future financial situation based on this system.
Made some adjustments and getting close to what I want to achieve:

*I want my money back I invested when BTC hits 2000 USD
*I want a decent ammount of USD out when BTC hits the 30000-50000 USD range.
*I want at least half of my coins left when BTC would hit 100000 USD
*I want >33% left if bitcoin would ever hit 1 million USD

I find plotting these numbers really helpful in making decisions. It makes it more visible and you take more rational decisions.
This will probably be my strategy:

I start selling 1% @ 1000 USD
1% of what is left @ 1100 USD
1% of what is left @ 1200 USD
...
1% of what is left @ 2000 USD
1% of what is left @ 2200 USD
1% of what is left @ 2400 USD
...
1% of what is left @ 4000 USD
1% of what is left @ 4400 USD
1% of what is left @ 4800 USD
...

(and so on...)

results with 1 BTC (I own more ):

*total of 156 USD out when BTC hits 2000 USD (this is 20 USD above the average I paid for my BTC)
*total of 4006 USD out when BTC hits 41600 USD (reasonable ammount)
*51% of coins left when BTC hits 102400 USD
*36% of coins left when BTC hits 1024000 USD

(of course, I can increase the number of discrete steps when BTC price goes higher, but I did not want to make my analysis more complex7
In this system I used 10 steps between each doubling of the price)

Do your own analysis!


PS: calculating the different "risk premiums" you "pay" for selling coins at different sell percentages is very helpfull. Have some fun using excel

[Siegfried]

I am actually plotting my future financial situation based on this system.
Made some adjustments and getting close to what I want to achieve:

*I want my money back I invested when BTC hits 2000 USD
*I want a decent ammount of USD out when BTC hits the 30000-50000 USD range.
*I want at least half of my coins left when BTC would hit 100000 USD
*I want >33% left if bitcoin would ever hit 1 million USD

I find plotting these numbers really helpful in making decisions. It makes it more visible and you take more rational decisions.
This will probably be my strategy:

I start selling 1% @ 1000 USD
1% of what is left @ 1100 USD
1% of what is left @ 1200 USD
...
1% of what is left @ 2000 USD
1% of what is left @ 2200 USD
1% of what is left @ 2400 USD
...
1% of what is left @ 4000 USD
1% of what is left @ 4400 USD
1% of what is left @ 4800 USD
...

(and so on...)

results with 1 BTC (I own more ):

*total of 156 USD out when BTC hits 2000 USD (this is 20 USD above the average I paid for my BTC)
*total of 4006 USD out when BTC hits 41600 USD (reasonable ammount)
*51% of coins left when BTC hits 102400 USD
*36% of coins left when BTC hits 1024000 USD

(of course, I can increase the number of discrete steps when BTC price goes higher, but I did not want to make my analysis more complex7
In this system I used 10 steps between each doubling of the price)

Do your own analysis!


PS: calculating the different "risk premiums" you "pay" for selling coins at different sell percentages is very helpfull. Have some fun using excel

I hope you will spend your BTC rather than sell them.

[Driv3n]

Great thread, thanks to everyone who made contributions.

Just bought my first bitcoins last weekend and used this thread to help create an excel spreadsheet to determine my plan of action if price continues to increase.  The potential here is exciting!

[bitebits]

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.

I hope you will spend your BTC rather than sell them.

I all of the sudden realize something, and maybe finally get the remark of Risto. It is quite likely that if bitcoin hits $1 million, there is no/less urge in 'cashing out' in fiat. It actually by then could be considered quite risky, switching to a centrally controlled non-crypto money. The world would indeed be different than today's. Interesting!

[Peter R]

I all of the sudden realize something, and maybe finally get the remark of Risto. It is quite likely that if bitcoin hits $1 million, there is no/less urge in 'cashing out' in fiat. It actually by then could be considered quite risky, switching to a centrally controlled non-crypto money. The world would indeed be different than today's. Interesting!

Welcome to the club 

[JayJuanGee]

Thanks to OP for outlining the SSS plan and discussing the various advantages of having a rake plan.

I like this b/c I do NOT consider myself to be an all or nothing investor, and I can apply several of the principles to my own BTC investment situation.

I have been inspired to outline my own variation of such a plan, which in essence embodies the concept of small amounts of rake for the purposes of trading that are going to be triggered at increments of 10% rises in BTC prices - and also based on my average price per BTC and then periodic larger amounts of rake triggered (more permanent) at the doubling of my investment - to take off the table up to 10% on the first doubling and likely to take off nearly all of my invested capital by the second doubling of BTC prices  (which hopefully, some day will come).

I will probably play around with Excel to provide me with various categories to monitor my investment using variables that I like to monitor, such as my average price per BTC.

Currently, my average price per BTC is $607 (including transaction fees), so it is very likely that various 1% trading rakes will be triggered this year between about $670 and $1,140.  And, then a more permanent 10% rake will be triggered around $1,214 - hopefully by possibly 2015, but i am o.k. if it takes a bit longer, if that is what is in the BTC cards (which seems unlikely but possible).  I am still considering the possibility of skipping the permanent rake on the first doubling of BTC in order to take my complete investment back upon the second doubling - which would be 25% on the second doubling.

Regarding strategic forms of dollar cost averaging, I am a true believer in that practice of dollar cost averaging for a couple of reasons: 1) when prices of the asset are going down - especially after a recent bullrun (which was the case in NOvember 2013), it would be better to get in slowly and then to increase capital at lower BTC prices rather than going all in at that point in time - which was the case with me in November 2013 (I could have been invested in BTC at $1200 per BTC, and instead, currently, I am invested at $607 per BTC b/c I followed a form of hybrid DCA) 2) a person may NOT have a lump sum to invest when s/he first becomes interested in making the investment, and may be forced to buy into the investment as his/her salary comes in.  

On the other hand, if the asset is surely way under priced, as seems to be the current BTC situation (as compared with late November 2013), it may be better to be a little more aggressive on the front-loading of the investment rather than DCA in order NOT to miss the boat when or if the boat leaves the loading station... or the train or rocket or whatever leaves.

[David Latapie]

You might be interested in this article of mine, where I mention the rule above (that I dub "10/200 rule") and add some more about day-trading.

Investment strategy - 10/200 and trailing stop (blog, most recent version)
Investment strategy - 10/200 and trailing stop (forum, outdated version)

I'd appreciate any inputs.

[JayJuanGee]

You might be interested in this article of mine, where I mention the rule above (that I dub "10/200 rule") and add some more about day-trading.

Investment strategy - 10/200 and trailing stop (blog, most recent version)
Investment strategy - 10/200 and trailing stop (forum, outdated version)

I'd appreciate any inputs.

AT this point, I am NOT planning to implement that level of BTC trading, and I will only be trading with the portions that I rake in about 10% increments of BTC appreciation and only 1% of my total  BTC investment by using preset values that I calculate and input into trading at the time that the rakes are triggered. 

At this point, I view my plan as somewhat in the hypothetical b/c my BTC portfolio has been pretty much in the red since I started with BTC since November 2013 - however, once my BTC portfolio is in the black and my trading rake and trading plan are triggered and I play around with it for a while, I will likely provide more details.