🎯 Goalseek

FIRE BTC Issue 59 - How to calculate your BTC stacking goal

Once you understand the power of bitcoin as a personal finance asset and making the decision to stack, you will inevitably come to a crucial question—one that never seems to have a satisfying answer—because the answer always seems to be “more”.

The question at stake is: How much bitcoin do I actually need?

You’ll see meme-focused, simple answers to this question out there:

“Just get to 1 BTC, and you’ll be set.” Or, “you can retire off just 0.1 BTC!”

These are great for shareability and generating discussion, but they aren’t exactly practical.

From a FIRE perspective, we generally speak in dollar-denominated terms. The 4% rule is the standard and should be the starting point. I wrote about its relevance to bitcoin here:

But bitcoiners tend to think in BTC-denominated terms. After all, if bitcoin becomes the global standard for money, then goods, services, and investment portfolios will be priced in it.

So to scratch that itch, I’m going to propose a framework for calculating how to set a bitcoin stacking goal.

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🧱 Building a baseline

I had a thought the other day, that led to a tweet, that led to a mountain of comments:

In fact, some of you are here, reading this now, because I promised to dig into the details here, and you just had to find out what I would say. Thank you.

Let’s break this down, line by line.

“Calculate your annual expenses”

The pursuit of financial independence should always start with understanding your expenses.

The goal we’re after is to fund our lifestyle without needing to work, which means building a savings portfolio that is large enough to cover our expenses.

And how do you know how much needs to be covered? By calculating it!

This part is easy. Add up all of the expenses you currently have on an annual basis: mortgage, cars, kids’ sports, groceries, eating out, leisure activities, vacations, etc. It doesn’t have to be perfect, but come up with a conservative estimate.

If there’s a specific aspirational purchase you want after reaching financial freedom—like a country club membership—include it as well.

When you know what expenses need to be covered, you can start to calculate what you’ll need to save to cover them.

“Multiply by 12.5”

Ok, now we’re getting into the fun part.

This is derived from an adaptation of the 4% rule, which is already conservative. It’s a very simple adaptation that assumes bitcoin will grow in value faster than stocks.

I generally use a conservative growth estimate for bitcoin of 25%. Stocks historically grow around 10% annually (on average). So I expect bitcoin to grow at more than twice the rate of stocks over the next 20 years.

That means we can assume a withdrawal rate for the bitcoin portion of our portfolio that is higher than 4%.

The 25% CAGR relative to 10% on stocks implies a withdrawal rate of 10% annually. I like to be extra conservative, though, so we’ll simplify it down to 8% instead.

This is where the 12.5 number comes from. The 4% rule means you can multiply your annual expenses by 25x to calculate your FIRE number. Adjusting to 8% (double the withdrawal rate) means you need half the amount saved.

For a simple example, if you calculated your annual expenses as $100k, you need $2.5 million in your savings portfolio to achieve FIRE. But bitcoin, with its higher assumed growth rate, can support $100k of expenses with a savings portfolio of only $1.25 million.

“Divide by the BTC price”

Once we have the dollar-denominated amount needed, we can easily translate to bitcoin terms by dividing by the current bitcoin price.

At the time of writing, bitcoin is trading around $87,000. That means a dollar-denominated goal of $1.25 million is equal to just over 14 BTC.

In other words, if you’ve accumulated 14 BTC today, you’ve reached your FIRE target.

That’s interesting information, but it’s only a snapshot in time. Watch what happens when we adjust the price of bitcoin:

The 14 BTC today may have given you sticker shock, but assuming a higher price in the future makes the goal feel more achievable.

You can use this simple formula to make an educated guess about what your stacking goal should be by plugging in your annual expenses and assuming a future bitcoin price.

But let’s take it a step further, and see if we can model out a more accurate goal that takes time into consideration.