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Author Topic: Buying catastrophe insurance  (Read 2258 times)
Ian Maxwell
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April 25, 2011, 07:38:04 PM
 #1

I'd like to convert several thousand US dollars to bitcoins. As a poor grad student I'm not comfortable losing that much, so I want to buy insurance against total or near-total loss due to catastrophic events, such as:
  • Market collapse (say, bitcoins valued below $0.10 for over 30 days)
  • Bitcoin P2P network compromised or destroyed
  • Bitcoins or capital gains seized, frozen, or otherwise made unavailable due to government action
  • Mt Gox funds stolen, seized, frozen, or otherwise made unavailable for an indefinite period
  • Other events harmful to the bitcoin community as a whole... we'd have to hash out the details.

Is anyone interested in selling such insurance? I'm interested in a one-year policy with a $5000 payout. As for the premium, I think the probability of a catastrophe within this particular year is low---less than 5%---so I'll throw out $250 as a starting point for negotiation.

One thing I do need is some assurance that I can collect if necessary. I will insist on a signed, notarized, legally enforceable contract. I'm also not really familiar with the legal requirements to act as an insurer, and will tip well for any information that proves useful in completing a contract.

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bitjet
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April 26, 2011, 12:38:14 AM
 #2

I'd like to convert several thousand US dollars to bitcoins. As a poor grad student I'm not comfortable losing that much, so I want to buy insurance against total or near-total loss due to catastrophic events, such as:
  • Market collapse (say, bitcoins valued below $0.10 for over 30 days)
  • Bitcoin P2P network compromised or destroyed
  • Bitcoins or capital gains seized, frozen, or otherwise made unavailable due to government action
  • Mt Gox funds stolen, seized, frozen, or otherwise made unavailable for an indefinite period
  • Other events harmful to the bitcoin community as a whole... we'd have to hash out the details.

Is anyone interested in selling such insurance? I'm interested in a one-year policy with a $5000 payout. As for the premium, I think the probability of a catastrophe within this particular year is low---less than 5%---so I'll throw out $250 as a starting point for negotiation.

One thing I do need is some assurance that I can collect if necessary. I will insist on a signed, notarized, legally enforceable contract. I'm also not really familiar with the legal requirements to act as an insurer, and will tip well for any information that proves useful in completing a contract.

$250 for tieing up 5k.. while it sounds reasonable dont think I could do it. Wish I could because I would take that bet this year.
Belkaar
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April 26, 2011, 05:27:22 AM
 #3

I'd like to convert several thousand US dollars to bitcoins. As a poor grad student I'm not comfortable losing that much, so I want to buy insurance against total or near-total loss due to catastrophic events, such as:
  • Bitcoins or capital gains seized, frozen, or otherwise made unavailable due to government action
  • Mt Gox funds stolen, seized, frozen, or otherwise made unavailable for an indefinite period

You should probably add which government you're talking about. I think some are more likely to act than others.

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Ian Maxwell
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April 26, 2011, 12:26:11 PM
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You should probably add which government you're talking about. I think some are more likely to act than others.

Doesn't matter which government, only whether I lose my money. I'm in the US, but that won't get me my money back if the network is sabotaged by the Mossad or whatever.

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April 26, 2011, 12:35:40 PM
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I think the probability of a catastrophe within this particular year is low---less than 5%

Interesting. I think the probability of a catastrophe within the next 12 months is above 10%. But the potential upside is so very high that it's worth it.
Ian Maxwell
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April 26, 2011, 01:06:21 PM
 #6

Agreed that the upside would cancel out even a 50% chance of collapse, as long as I could afford the loss. But I'm a married man with a child on the way (and a wife who's a bit skeptical about this whole thing), so losing a few thousand dollars would not only represent a serious financial hardship but a serious domestic hardship. (We can handle the Fed, but we don't want to piss off any moms.  Grin)

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April 26, 2011, 01:31:20 PM
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Agreed that the upside would cancel out even a 50% chance of collapse, as long as I could afford the loss. But I'm a married man with a child on the way (and a wife who's a bit skeptical about this whole thing), so losing a few thousand dollars would not only represent a serious financial hardship but a serious domestic hardship. (We can handle the Fed, but we don't want to piss off any moms.  Grin)

The Bitcoin stock exchange will be able to handle this, see this thread.

It's testing now, you could try coming up with an options contract.

Here's an example shares contract.

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ribuck
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April 26, 2011, 01:37:20 PM
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... losing a few thousand dollars would not only represent a serious financial hardship but a serious domestic hardship.

Fair enough! Family life is more important than gambling.

You could invest in $100 worth of bitcoins rather than $5000 worth of bitcoins, and enjoy the ride just as much.

Or you could sell some unwanted stuff for BTC at the BiddingPond.

deadlizard
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April 26, 2011, 01:42:48 PM
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When I saw the title of this thread I assumed it would be about cat bonds  Wink
http://en.wikipedia.org/wiki/Catastrophe_bond


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genjix
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April 26, 2011, 02:19:38 PM
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Check your PMs
Ian Maxwell
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April 26, 2011, 02:44:09 PM
 #11

This is not a put option. A put option will be useless if I don't have any bitcoins to put, or if I'm unable to deliver them for whatever reason. I need to be able to collect even if my assets are confiscated or frozen.

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April 26, 2011, 03:32:10 PM
 #12

With a Call Option, you wont even need to have any bitcoins to keep Smiley

Ian Maxwell
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April 26, 2011, 05:06:02 PM
 #13

bitdragon: good point... I could buy call options on around 2000-3000 BTC at the current exchange rate or a bit higher, and consider the premium as an insurance premium. It also sounds less crazy to others if I can say "I invested $300, I might lose it all but the upside is huge," instead of "I invested $5000, I might lose it all but I'm insured so it's totally okay." Come to think of it, I already tried this but didn't get a big response.

Well, let's try it again! I'll put an offer up on Nefario's exchange; in the meantime, is anyone here interested in offering me a competitive rate on one-year call options at, say, 1.9 USD? American or European, your choice.

Ian Maxwell
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April 26, 2011, 10:21:19 PM
 #14

I would have no idea how to price such a product. Our friend Black Scholes must come up with something I guess-
Sounds risky to me and I would require hedging of some sort but do not know how yet. Maybe the weusecarrots (don't buy bitcoins) chap is a potential candidate as he seems to be an apparent skeptic of Bitcoins worth and future-
You pay him 0.1USD for one call option ratio=1 Strike Price=10USD Expiration=31Dec 2011
BTC=20 USD 100x Return Smiley
Or you buy bitcoins directly but at an acceptable level of $500 and get a possible 10X return if it reaches 20USD

Nefario's exchange would actually be in Bitcoins if I am not mistaken so how would that function?
You pay now in bitcoins for an option with the underlying being BTCUSD exchange rate- Strike Price = 0.1BTC/USD
The rate ends being 20USD again you get a boatload of bitcoins in return-
This would have to be done with someone who is invested in Bitcoins sizeably so he is pretty enthusiastic and would have little to gain, but why not. There is market for everything and could be done with many participants rather than 1 single. All those who participate in the poll with value not reaching 10USD by end of year are potential counter parties-

There is the option of accepting bitcoins in return for your goods and services that you provide, that you can do in addition to your investment;

A mix of things is probably the way to go:
Small investment, Call Options, Goods and Services in BTC topped off with a mining operation-




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