# Bitcoin and Rationality, Part 2: Why Bitcoin is not like the lottery, and when to sell

See part 1

Eliezer Yudkowsky disagrees with Scott’s Crypto Autopsy post, writing:

The idea of “rationality” is that we can talk about general, abstract algorithms of cognition which tend to produce better or worse results. If there’s no general thinking pattern that produces a systematically better result, you were perfectly rational. If there’s no thinking pattern a human can realistically adopt that produces a better result, you were about as sane as a human gets. We don’t say, “Gosh, I sure do wish I’d bought the Mega Millions ticket for 01-04-14-17-40-04* yesterday.” We don’t say, “Rationalists should win the lottery.”

People who obtained Bitcoin early on and are sitting on a large windfall are often compared to lottery winners, suggesting that the role of luck far overpowers any possible skill. One should not beat themselves up over missing out on Bitcoin, because it’s not any different than winning the lottery.

I agree one should not beat themselves up, because dwelling on the past is a poor use of one’s time, but that is not because Bitcoin is like the lottery, which it isn’t. The most obvious evidence such a comparison is wrong is the fact there is so much Bitcoin regret but no lotto regret. Surely if they were the same thing, we would not see so much discussion about Bitcoin regret, just as we don’t see discussion about lotto regret. No one says “drat…I wish I picked 5,45,20,99 instead of 1,7,33,23.”

Scott is right. There was an opportunity to make effortless riches–that in theory anyone could have done, as easily as mining them when it was easy or buying them cheap. Getting rich with bitcoin merely required two actions that anyone could have done easily: become aware of the existence of Bitcoin, and then buy & hold it. There were pitfalls along the way: hacking of exchanges, lost keys, selling too soon, spending bitcoin instead of saving, etc.

Why are there so many posts and articles about Bitcoin regret but not lotto regret? Eli falsely equates the two when they are not the same. Acquiring Bitcoin early, unlike guessing numbers out of hundreds of millions of possibilities, as explained above, is something anyone could have conceivably done.Unlike the lotto, it didn’t require pure luck but rather a combination of awareness and action. Right there, in front of you, are the coins at $.1-$10 waiting to be bought. All you had to do was buy them. Same for Ethereum…$1 ether tokens…right there. Nowadays, unlike before 2016, there are too many coins and picking the next Ethereum or Bitcoin requires much more luck. A 50% gain in an individual stock over a 1-year period is considered exceptional. Bitcoin blew this away by a magnitude of thousands. No individual stock (or any sort of investment opportunity) even remotely comes close to Bitcoin and other coins. Maybe Apple in 2004 or Netflix in 2004 is the closest. But what about the objection that buying Bitcoin in 2009-2011 is like playing the lottery or donating to charity? There are two key distinctions: The odds of choosing a profitable investment are magnitudes higher than correct lotto numbers. Although the lotto pays more, the expected value is negative due the infinitesimal odds. With charity, your money is gone for good. You hope your donation is being allocated wisely, but you have no control over that. But by buying Bitcoin early on, one was able to both support Bitcoin while also having the option to sell the coins on an exchange or other market at any time for an agreed upon market price. What would have been the harm though of throwing a few hundred dollars at Bitcoin out of curiosity. Unlike a used lotto ticket, the value does not just go away. Someone in 2011 or so could have observed the intellectually vibrant Bitcoin community and thought, “hmm…these people seem to have an interesting idea..I’ll throw a few hundred bucks their way and see what happens, and unlike donating to charity , it’s not like the money is gone. There is a market if I want to sell, and I’m supporting the cause, and some vendors actually accept Bitcoin too.” Yes there a luck factor in terms of choosing winning investments, but the odds are not as bleak and random as lotto tickets though. In conclusions, the key distinction is that while choosing winning investments involves luck, unlike guessing correct numbers, Bitcoin in 2009-2011 was something that was much more feasible and did not require pure guesswork, but rather a combination of awareness (knowing that Bitcoin exists) and action (buying them or mining them). The next question is, when to sell? ‘HODL’ is not rationally-optimal and is based on the belief that past price performance can predict the future, but obviously there is no such guarantee. The optimal time to sell is based on many variables: estimated remaining life expectancy, predicted annual returns assuming the after-tax proceeds from the Bitcoin sale are reinvested in index funds and or bonds, monthly draw-downs for living expenses, etc. If one has enough Bitcoin to never have to work again, given the above variables, then selling would probably be the most rational choice even if this means selling (in retrospect) too soon. Or if you have enough Bitcoin to buy real estate, which has smoother returns than Bitcoin and means not having to piss away money on rent. Although Bitcoin may have higher returns then real estate, real estate prices are much more stable and real estate has the added utility that is derived from either living in it or renting it out. However, it’s possible that one could derive income by selling calls option against a Bitcoin position. In other instances, HODL may be rational. Let’s say, for example, you owe the IRS$200,000 but you also have $200,000 in Bitcoin (which you bought long time ago that the govt. is oblivious to). The ability of the IRS to deduct wages is limited, but they can easily seize windfalls. Because back taxes expire in 10 years, the rational choice may be to just hold until either the taxes expire or Bitcoin rises enough to pay the taxes and leave enough left over. Selling at$200,000 means having the IRS take it. Trying sell the Bitcoin but not report the income incurs the criminal risk of tax evasion, which is made worse if one already owes taxes.

But, again, despite all the media hype over Bitcoin riches, most people have less than a single Bitcoin, which they likely purchased between October-January near the top. In this case, given how much Bitcoin has already fallen, but also given Bitcoin’s historical tendency to recover, holding may be the best choice, but it requires a lot of patience.

But what if you really believe in Bitcoin, and that the U.S. dollar is doomed, etc.–why would you sell? Here’s a solution: Let’s assume you have enough profit to never have to work again. You can sell your Bitcoin, quit your job, and then use your newfound free time advance pro-Bitcoin causes.