Everyone should have a Bitcoin insurance policy
How much Bitcoin do you need to never have to worry about Bitcoin
In this issue:
Until fairly recently the vast majority of all people, companies and governments had the same basic plan for how to handle Bitcoin: ignore it and wait for it to go away. But in the last few months governments and companies have started coming to terms with the idea that Bitcoin isn’t going away on its own and are establishing their plans and policies for a possible Bitcoin future.
Whether they are Bitcoin enthusiasts or not, ordinary citizens need to start planning seriously for the possibility that Bitcoin is real and what they need to do about it.
What does it mean if Bitcoin is real?
The price of Bitcoin is unlike the price of most things in that pretty much everyone agrees that the price of Bitcoin is wrong. Most people don’t think a bitcoin is actually worth ~$33k (at time of writing) but instead think it is worth either $0 or $MANY, where estimates for $MANY vary but are generally quite large.
Bitcoin aspires to be the best possible tool for storing value. There is a lot of value in the world to store and right now people store it in a great many things: gold, equity, fine art, real estate, etc. If Bitcoin succeeds in becoming the best tool for storing value we would expect it to capture much or all of the value being stored in the world today. So not only would Bitcoin become very valuable, everything else (gold, equity, fine art, real estate) would become less valuable.
Society as a whole would be better equipped to store value, because in this thought experiment Bitcoin is the better saving technology. But people who mostly own traditional assets like real estate, 401ks and gold will see their savings diminish as demand shifts to Bitcoin and the prices of those assets drop. It’s not just that the price of Bitcoin will go up. It's also that the value of everything else will go down.
That is why everyone needs a Bitcoin insurance policy - a plan for the possibility that Bitcoin will turn out to be the future of money. Ignoring Bitcoin and assuming it will go away has been a reasonable strategy up to this point - but now even nation-states are starting to prepare. Whether you like Bitcoin or not, everyone needs to think about how they will protect themselves from the possibility that Bitcoin is real.
If you worry that Bitcoin might turn out to be $0, you probably own too many bitcoin. On the other hand, if you worry that Bitcoin might turn out to be worth $MANY, you probably don’t own enough.
How much Bitcoin do I need?
Framing the strategic question of Bitcoin as an insurance policy is helpful because it encourages us to think probabilistically about the long-term and not to try timing the short term movements of the marketplace. We don’t buy and sell health insurance based on the results of our annual check up - we buy health insurance for peace of mind and then stop worrying about the risks. A Bitcoin insurance plan should work the same way.
The easiest way for an individual to hedge against the risk of a Bitcoin future is by owning some. If you don’t own any Bitcoin at all a small part of you is probably worried about whether you might one day regret that decision. You can handle that worry by dedicating yourself fully to understanding the space and trying to predict the future1 or you can set up a Bitcoin insurance plan and go back to ignoring Bitcoin entirely safe in the knowledge you are insured against it.
For most people I think Bitcoin insurance is the sensible answer and fortunately it can still be bought fairly cheaply. Here is how I would estimate the costs of a typical Bitcoin insurance policy today:
If Bitcoin succeeds in becoming the best possible money then everyone in the world will want Bitcoin. There aren’t very many Bitcoin compared to people in the world, so that means a very small amount of Bitcoin will have to go a long way. Using inequality statistics for the world economy today to project2 a possible Bitcoin future, that would imply anyone who owned at least 0.001 BTC (~$33 at time of writing) would be wealthier than ~80% of the world population. To be wealthier than ~99% of the Bitcoin population (equivalent to a net worth of ~$1M USD according to the 2021 Credit Suisse Wealth Report) you would need to own at least 0.074 BTC (~$2.4k at time of writing).
Today’s price chart for Bitcoin insurance looks like this:
If you consider yourself to be in one of these economic classes today and you don’t own at least that much Bitcoin, you are underinsured. On the other hand if you own more Bitcoin than your corresponding insurance policy, you don’t need to be vigilant against the threat of Bitcoin disrupting your wealth. You are already hedged.
When I first started pricing out Bitcoin insurance in 2017, Top 1% coverage cost only ~$200. One day the prices in the chart above will look comparably cheap.
Better to buy flood insurance before the rainy season comes.
How to buy Bitcoin insurance:
Bitcoin insurance is increasingly easy to obtain from an ever growing array of qualified providers. You can buy bitcoin on most of the major payment apps, including Square’s CashApp, Venmo and Paypal. There are also exchanges like Robinhood, Gemini or Coinbase that sell bitcoin alongside other more speculative assets or you can buy peer-to-peer bitcoin from services like Paxful and localbitcoins. You can learn a little about how and where to store bitcoins from this previous article about what it means to own bitcoin.
Do you have a friend or loved one who is underinsured? Send them this article!
I honestly recommend it as a lifestyle but I suppose it’s not for everyone.
Projecting from a Gini coefficient of ~0.804, per this paper. Here is a spreadsheet if you would like to inspect or tinker with the assumptions yourself. Shill me any better sources for Gini coefficient estimates if you have them!