February 14, 2018

People assume that the people who worked on Bitcoin in the early years are fabulously wealthy.

That’s a bad assumption, for lots of reasons:

It was easy to lose coins. They weren’t worth much, so people didn’t bother to take the time to keep them secure and back them up.

Many of the early developers didn’t have extra money to buy coins; they were still in school, or were pouring all of their money into a startup. Venture capitalists were NOT throwing money at Bitcoin startups back in 2010 and 2011.

“HODL” wasn’t a thing– instead, bootstrapping the community by purchasing things (like 50BTC alpaca socks or 10,000BTC pizzas) or giving away Bitcoin was encouraged.

Even if an early developer had the free cash and foresight to purchase a bunch of coins, they might be level-headed and follow tried and true investment advice to:

1) Make a long-term plan and stick to it, ignoring short-term market drama

2) Diversify; mix high-risk and low-risk investments, and re-balance if any one investment dominates your portfolio.

Imagine a rational, disciplined person who had $100,000 in investments before they heard about Bitcoin. On January 1, 2011 they decided to take a risk and spend five thousand dollars to buy 10,000 BTC. Their long-term plan: evaluate their holdings once a year, and rebalance at the beginning of the year if their BTC holdings were more than 10% of their total investments.

I created a spreadsheet showing what happens. They would do extremely well, ending up with over $5million– a 1,000x return on their initial investment! But they would sell almost all of their BTC along the way, ending up holding fewer than 40 BTC.

Which is nothing to sneeze at; 40 BTC is worth a few hundred thousand dollars, and 5 million dollars in safe, liquid investments is enough to fund a very comfortable retirement.

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