When Should I Sell My Bitcoin? Use The Rake Method. A Sane, Simple Savings Plan For Bitcoin.
“Guessing the top” never works, use the Rake Method instead.
This article borrows directly from and is an updated version of this post made by user, rpietila on BitcoinTalk.org in November 2013. ALL credit goes to rpietila.
1. Bitcoin has made me rich. But consider the guy who sold the two pizzas to Laszlo Hanyecz for 10,000 BTC (~$0.0025/BTC). If the seller waited just 4 years a $25 investment would have turned into $10 million — a nice 500,000 x reward. But what if he would have excitedly sold it all (he did) when the price first doubled? Then instead of millions, he would have netted $25. So, how do we know when to sell our Bitcoin?
Worse than not making money is actually losing money with Bitcoin. Buying at the top and selling low is the fate of many who do not have a strategy or understanding of their actions, but that’s not for us.
2. It is actual money that you lose if you do not buy, or buy a smaller amount than you could have bought. My friends, family and I would all be dollar millionaires by now, had we just acted rationally since the day we first heard about Bitcoin. Even I would probably have 10x more coins with no corresponding increase in risk had I followed this method from day 1.
The past cannot be changed but there is still enough room for a future upswing to amply reward those who of us who care to exercise our logic and invest rationally.
3. 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 2020's at most). In this scenario even the 500,000x price increase (to $1,000) since “the pizza” will probably be the low-water mark for Bitcoin. If cumulatively, $1,000 is the floor for Bitcoin and we are currently (10/2023) at $35,000 (BTC) + $250 (BCH) how much can Bitcoin go up?
A few years ago I had two strong realizations (A) that Bitcoin’s daily transaction volume could and should reach that of at least Visa and (B) Bitcoin’s market cap could reach that of gold.
A) Visa does around 100–500 million tx/day so that is a good starting point to aim for, is that reasonable or even possible for Bitcoin? Short answer, yes, probably. BTC can currently do 2–3 tx/sec and BCH can do 100+/sec, so a total of 102 tx/sec. This uses ~21mb/block together, so we have about 8,813,000 tx/day. We will need to increase this by a factor of 10 or even 100, which means at least 200 mb per block. Currently Bitcoin uses 2.5 gb/day and will need to up that 25 gb/day. Ethereum is currently growing at about 3–5gb/day but has increased by as much as 10 gb in one day. I honestly don’t know how big blocks can get but 10 gb/day does not seem like a stretch from where we are now.
B) A market cap similar to gold would translate to $300,000 per Bitcoin. 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.
5. The Rake, or SSS System for 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 mBTC. (It is very much likely that we will spontaneously revert to mBTC 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 $10k. His rake level is 10%, which starts immediately.
Code:
Price mB k$ 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 10,000mBTC, in the end he still has 3,487mBTC.
- Recovered initial investment of $10k in full when mBTC hits $8.
- In the end his fiat+other stuff stash is worth $0.9 million.
6. Discussion: It 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. I have in the past tried to keep all forks of Bitcoin equally but choosing which one to focus on is an exercise left to the reader.
Thank you, and don’t forget rule number one, buy Bitcoin :)