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The One Percent Solution to Hedging the Rise of Bitcoin

Date posted: December 26, 2015

Wences Casares, CEO of Xapos, speaking on EconTalk in July, posited an interesting way to create a relatively low-risk hedge against the potential explosive rise of Bitcoin over the next decade.

Here’s what Casares suggested during his appearance on EconTalk:

I happen to believe that there’s more than 50% chance that Bitcoin succeeds; and if Bitcoin succeeds, I believe that a Bitcoin is going to be worth more than a million dollars. I believe that some time in the next 10 years, one Bitcoin is going to be worth more than a million dollars. So, just like it would be very, very irresponsible to own an amount of bitcoin that you cannot afford to lose, it would also be silly not to own a little bit of Bitcoin. To put more than 1% of your savings in Bitcoin. Because if I am wrong, your downside is cut at 1% to hurt you very much. So, let’s say that your savings are $100,000. So, what I would say is you should have $1000 in Bitcoin.

If I am right, those 4 Bitcoins [value was $250 per Bitcoin at time of podcast] will be $4 million. Which is 40 times your entire savings. So it’s not like you will say I wish I had more. You bought plenty. So it’s asymmetrical that to have a little makes sense. Do not have enough Bitcoin that you cannot afford to lose, but have a little bit.

Russ Roberts, EconTalk’s host, said in response to Casare’s recommendation: “This could be life-changing… this is practical. It’s a very interesting way to think about it.”

Casares’ one percent solution to hedging the rise of Bitcoin seems practical to me, too, and, if it makes sense to you, use my link and complete a purchase of at least $100 worth of Bitcoin and Coinbase will send us both $10 worth of Bitcoin for free.