I really like the 10% rake on every doubling...  I'm basically using that with a slight modification...

As doubles tend to be far and few between, I'm using a 1% rake on each 10% increase... Over the past couple days this has resulted in a bit of excess, however long term it seems to be working out fairly well....

Siggy

The more I read reddit and the speculation forum, the more convinced I am that the logic of the OP needs to be internalized as part of every newbie's education. The Paradox of the Rake, to rename a point made by rpietila, is that performing proper rakes prevents panic selling.

"To hold onto your bitcoins through thick and thin, you must sell."

I think wide diffusion of this rake concept would significantly reduce volatility. This post or a similar one should be in the sticky atr/Bitcoin, speculation forum stickies, youtube video (short visual one and longer, detailed one - James D'Angelo?), etc. It is critical investor knowledge and can be considered part of Bitcoin's educational infrastructure, in the sense of being a component that enables Bitcoin to take over the world faster (and happens to make Bitcoin investors richer vs. the Wall Street money that will pour in in 2014 and less stressed as a bonus).

Additionally, Risto's savings plan is not only a plan, but also solid grounds for analysis. Despite being only dimly aware of the rake concept, if at all, most early adopters have likely followed it to some (suboptimal*) degree simply because of the psychological factors at work when one is faced with the Bitcoin "binary bet." This provides the ultimate answer to those who worry of wealth concentration, as well as an underpinning for speculative analysis.

*Either taking on excessive risk or losing an excessive number of coins, or alternating between the two, and ending up much poorer than was possible, due to lack of conscious application of the rake.

I think one of the toughest parts about the plan is the temptation to buy back in after a rake. Example:

- BTC briefly touches a new ATH at $1,000
- sell 10% for fiat
- BTC plunges to $500 a week later
- buy back in and hold for BTC to reach $1000

Assuming a strong belief that the new ATH is a realistic value for BTC, I for one would be very tempted to buy back in with the 10% I had just sold and wait again for BTC to double again.

In that case the SSS could be enhanced by a speculative component: 10% non-reversible rake and 5% reversible rake. The reversible rake would trigger a buy-back at a price point which e.g. is at half the price point at which it was used.

E.g. assume a (USD/mBTC) scenario by starting with 10 BTC ($10k USD) : 1->2->4->2->4

15% conventional rake strategy at each doubling: (USD/mBTC, BTC, USD)
1,  10, 0
2, 8.5, 3000
4, 7.225, 8100
2, 7.225, 8100
4, 7.225, 8100

10%nonrev/5%rev rake strategy at each doubling: (USD/mBTC, BTC, USD)
1,  10, 0
2, 8.5, 3000
4, 7.225, 8100
2, 7.650, 7250
4, 7.225, 8950

The 10% acts as a hedge, the 5% acts as a time-based arbitrage from which you gain additionally.

From my experience buy-and-hold with a simple rake still offers the most gain for the least effort.

If you want to increase the gain via a time-based arbitrage you have to give up some of your longterm price appreciation for the benefit of short-term price fluctuations. It's always difficult to figure out which one is more attractive at certain times. If the price flatlines a reversible rake strategy with a small enough margin will do well. The problem is to be able to predict when the price flatlines and when it starts to rally. If you have too much of a rake involved and you miss the start of a rally, you basically forgo all the opportunity gains coming from that initial slope in the rally.

That said - a reversible rake strategy works best in a scenario where there are huge price inflations and deflations, as you accumulate fiat on the way up and btc on the way down without the need to call the bottoms or the tops. That said - I don't expect bitcoin to depreciate more then 10x anytime soon - other than becoming worthless because of some black swan event.

+1

Great and fun idea!

Hello Op, thank you very much for this thread. I want your honest answer to 1 question. With all your knowledge of bitcoin, from 0 to 100 what would be your honest guess about the probability of mBtc getting to 1000usd, and the probability of crash and burning.

What about the probability of going higher, but not as high as 1kusd per mBtc, before maybe slowly dying being replaced etc?.

Thank you.

De-raking

If the goal is to maintain 80% of your portfolio in Bitcoin, what do you do when the price falls a lot (for a non-catastrophic reason)? If you had $80,000 in BTC and $20,000 in fiat, then the price halved, you'd now have $40,000 in BTC and it'd only be about 67% of your portfolio. Wouldn't you want to buy back enough BTC to bring the ratio back to 80/20?

Obviously there are limits to how low you'd go with this, but does this have any use or does even any rebalancing on price dips ruin the whole point of the rake/hedge?